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The  American  Books 

COST  OF 
LIVING 


BY 

FABIAN   FRANKLIN 

Associate  Editor  of  the  New  York  Evening  Post 


GARDEN    CITY  NEW   YORK 

DOUBLEDAY,  PAGE  &  COMPANY 
1915 


,    .  ^f 


Copyright,  IQIS,  by 
DOUBLEDAY,  PaGE  &  CoMPANY 

All  rights  reserved,  including  that  of 

translation  into  foreign  languages, 

including  the  Scandinavian 


» ••  •  • . 


BIOGRAPHICAL  NOTE 

Fabian  Franklin  was  born  in  Eger,  Hungary, 
January  i8,  1853.  He  came  to  this  countr>^  in  1857. 
After  graduating  at  George  Washington  University, 
in  1869,  he  engaged  in  civil  engineering  and  survey- 
ing. In  1876  he  became  one  of  the  group  of 
students  who  gathered  in  Baltimore  at  the  founding 
of  Johns  Hopkins  University.  He  was  a  fellow  at 
Johns  Hopkins  1877-9,  associate,  associate  professor, 
and  professor  of  mathematics,  1879-95.  ^^  was 
editor  of  the  Baltimore  News,  1895-1908,  and  since 
1909  has  been  associate  editor  of  the  New  York 
Evening  Post. 

Dr.  Franklin  is  the  author  of  "People  and  Prob- 
lems" (1908),  "The  Life  of  Daniel  Coit  Oilman" 
(1910),  and  numerous  papers  on  mathematics  and 
economics.  He  is  a  regular  contributor  to  the 
Unpopular  Review. 


r\  c\  4  rv  jt  r\ 


I 


CONTENTS 


CHAPTER 

I.  The  High-price  Period 
II.  Price  and  Cost 

III.  "Cost  of  High  Living"    . 

IV.  Value  of  the  Dollar  .... 
V.  The  Quantity  Theory  of  Money 

VI.  The  Pangs  of  Readjustment 

VII.  Food  Prices  and  Other  Prices  . 

VIII.  Tariff,  Trusts,  Cold  Storage     . 

IX.  Middlemen,  Markets,  Cooperation 

X.  Low  Prices  and  Discontent 

XI.  High  Prices  and  Discontent 

XII.  The    Multiple    Standard  and    the 

Compensated  Dollar  . 

XIII.  The  War,  and  the  Future    . 

XIV.  Some  General  Reflections   . 


PAGB 

3 

10 

28 

38 
48 
68 

11 

87 

99 
109 

117 

122 
142 
154 


vu 


COST  OF  LIVING 


CHAPTER  I 

THE  HIGH-PRICE  PERIOD 

The  high  cost  of  Hving  has  been  one  of  the  fore- 
most subjects  of  general  concern,  general  dis- 
cussion, and  general  complaint,  for  a  number  of 
years,  not  only  in  our  own  country,  but  in 
Europe  as  well.  The  central  fact  which  is  at 
the  bottom  of  this  concern  and  discussion  and 
complaint  is  disputed  by  nobody.  There  is 
more  or  less  room  for  dispute  as  to  whether 
*'high  cost  of  living"  is  the  best  description 
for  that  fact;  and  m  some  degree  at  least  the 
designation  is  misleading.  But  it  is  an  undis- 
puted and  indisputable  fact  that  in  recent 
years  there  has  taken  place  a  very  great  rise  in 
the  general  level  of  prices — that,  for  nearly  all  the 
things  that  people  pay  out  their  money  to  get, 
they  have  been  having  to  pay  more  money  than 
they  did  some  years  ago.  It  has  been  taking  more 
dollars,  more  francs,  more  marks,  more  shillings, 
to  pay  for  a  given  quantity  of  meat,  or  flour,  or 
cloth,  or  coal,  or  bricks,  or  lumber,  or  nails. 

3 


4  Cost  of  Living 

For  this  phenomenon,  taken  in  itself,  the 
phrase  "high  cost  of  hving"  would  be  a  very 
misleading  designation  indeed.  If  it  so  hap- 
pened that  the  price  of  everything  had  increased 
in  the  same  ratio,  including  in  "everything"  the 
price  of  labor  and  of  personal  services  in  general, 
the  rise  in  the  general  level  of  prices  would  not 
mean,  in  any  real  sense,  a  rise  in  the  cost  of 
living  at  all.  If  the  price  of  every  commodity 
had  risen  by  60  per  cent.,  and  at  the  same 
time  wages  and  salaries  of  all  kinds  had  also 
risen  by  60  per  cent.,  then — at  least  so  far 
as  the  wage-earning  and  salaried  classes  were 
concerned — living  would  not  "cost"  any  more 
than  it  did,  in  any  substantial  meaning  of  the 
word.  A  mile  is  about  60  per  cent,  more  than 
a  kilometre;  and  if  we  were  suddenly  to  adopt 
the  metric  system,  but  preferred  to  keep  the 
good  old  name  of  "mile"  to  denote  what  the 
French  call  a  kilometre,  we  should  have  to 
walk  sixteen  miles  where  we  now  walk  ten, 
but  the  walk  would  not  be  a  whit  more  fatiguing 
nor  take  a  whit  more  time.  And  if  every  man 
got  to-day  sixteen  dollars  for  the  same  work  for 
which  he  used  to  get  ten,  he  could  pay  16  cents 
instead  of  10,  ^1.60  instead  of  ;Si.oo,  without 
finding  that  living  "cost"  him  any  more  in  the 


The  High-price  Period  5 

shape  of  labor,  or  economy,  or  thought,  than 
it  had  done  before. 

However,  this  is  not  what  has  happened. 
Prices  have  risen  very  irregularly;  the  price  of 
some  commodities  has  remained  stationary, 
that  of  others  has  risen  but  little,  while  the 
price  of  some — and  especially  many  of  those 
most  important  to  the  working  people — has 
risen  a  great  deal.  The  price  of  labor — in  other 
words,  the  rate  of  wages  as  paid  in  money — 
has  risen  considerably;  but  as  a  rule  wages  have 
probably  risen  distinctly  less  than  has  the 
general  level  of  the  prices  of  those  things  which 
the  working  people  have  to  buy  with  their 
wages.  Moreover,  even  where  wages  have 
risen  enough  to  balance  the  rise  of  prices,  the 
rise  has  been  slow  in  the  case  of  wages  and 
quick  in  the  case  of  prices  of  commodities,  so 
that  in  the  interval  the  wage-worker  has  suf- 
fered. This  is  still  more  true — speaking  gener- 
ally— of  salaries;  the  salaried  man  is  apt  to  have 
to  content  himself  with  the  same  fixed  number 
of  dollars  he  has  been  getting  for  years  after 
the  dollar  has  ceased  to  have  the  purchasing 
power  that  it  had  formerly  enjoyed.  And  there 
is  another  large  class,  which  we  have  thus  far 
overlooked,  that  is  in  even  worse  case.     Those 


6  Cost  of  Living 

who  receive  incomes  absolutely  fixed — interest 
on  long-time  bonds,  ground  rents,  annuities, 
etc. — have  to  take  without  a  murmur  the  falling- 
ofF  in  the  purchasing  power  of  the  dollar,  for 
there  is  no  way  for  them  to  obtain  an  increase 
in  the  number  of  dollars  coming  to  them.  Thus, 
as  a  matter  of  fact,  there  is  no  doubt  that  the 
rising  prices  of  recent  years  have  meant,  to 
great  multitudes  of  people,  a  real  increase  in  the 
cost  of  Hving;  and  indeed  to  millions  of  people, 
on  both  sides  of  the  Atlantic,  it  has  been  a  grave 
hardship  and  a  serious  grievance. 

Nevertheless,  it  is  well  to  remember  that  the 
central  fact  in  the  situation  has  been  a  rise  of 
prices,  and  that  in  so  far  as  there  has  been  a 
real  and  substantial  rise  in  the  cost  of  living 
this  has  been  a  consequence  of  the  rise  of  prices* 
The  point  has  much  more  than  "academic"  im- 
portance. People  have  fallen  into  the  habit  of 
speaking  of  the  high  cost  of  Hving  as  though  it 
were  somehow  an  inherent  part  of  the  present- 
day  development  of  civilization — something 
bound  up  with  the  general  trend  of  things  in 
our  economic  organization.  In  a  measure, 
possibly  in  a  considerable  measure,  this  may 
be  so;  we  shall  look  into  this  question,  to  some 
extent,   further  on.      But   if  we   are  to  have 


The  High-price  Period  7 

clear  ideas  on  the  subject,  we  must  begin  by 
looking  at  it  in  the  large.  And  in  the  large, 
what  has  taken  place  is  a  general  rise  of  prices; 
what  people  are  complaining  of  is  that  the  dol- 
lar will  not  buy  as  much  as  it  used  to  buy. 

Now,  so  far  from  this  being  an  inherent  part 
of  the  general  economic  conditions  of  the  pres- 
ent age,  it  is  an  extremely  recent  development. 
'The  level  of  prices  began  to  rise  less  than  twenty 
years  ago,  and  the  rise  began  to  be  serious  only 
about  ten  years  ago.  But  even  this  does  not 
begin  to  do  justice  to  the  facts.  When  prices 
began  to  rise,  in  1897  or  1898,  they  began  to 
rise,  not  from  a  normal  point,  but  from  a  point 
abnormally  low.  So  short  is  the  public  memory 
in  such  matters  that  it  is  safe  to  say  that  not 
one  person  in  twenty  nowadays  stops  to  think 
of  the  way  in  which,  up  to  1897  or  thereabouts, 
the  air  had  been  filled  for  years  with  lamenta- 
tions over  the  lowness  of  prices;  and  probably 
not  one  person  in  a  hundred,  when  told  that 
prices  have  risen  40  per  cent.,  or  60  per 
cent.,  or  whatever  it  may  be,  over  what  they 
were  twenty  years  ago,  stops  to  ask  whether 
prices  twenty  years  ago  were  what  may  be 
called  normal,  or  were  very  low  in  comparison 
with  what  they  had  been  ten  years  or  twenty 


8  Cost  of  Living 

years  before  that.  "The  shrinking  dollar"  is 
what  we  are  all  thinking  about  to-day;  but  Mr. 
Bryan  made  his  whirlwind  campaign  of  1896 — 
and  established  his  extraordinary  hold  on  the 
attachment  of  millions  of  his  countrymen — 
upon  the  issue  of  the  "  balloon  dollar,"  the  dollar 
whose  value  was  rising  so  fast  that  it  promised 
to  go  out  of  sight  altogether.  The  "cross  of 
gold"  upon  which  he  declared  that  mankind 
must  not  be  crucified  was  simply  the  cross  of 
low  prices;  it  was  the  fact  that  wheat  was  sell- 
ing at  fifty  cents  instead  of  a  dollar,  and  noth- 
ing else,  that  constituted  the  "crown  of  thorns" 
which  was  being  pressed  upon  the  brow  of  the 
Nebraska  or  Kansas  farmer. 

Some  of  the  specific  bearings  of  these  vicissi- 
tudes in  the  price-level  will  be  considered  in 
another  chapter;  they  are  mentioned  here  solely 
to  impress  upon  the  reader  the  fact  that  the 
high-price  period  in  which  we  are  now  living 
is  of  recent  origin,  and  was  immediately  pre- 
ceded by  a  period  of  precisely  the  opposite 
character;  and  since  no  fundamental  change  in 
the  nature  of  the  economic  organization  of  the 
world  has  taken  place  in  the  interval,  this  must 
serve  as  a  warning  that  the  rapid  rise  of  prices 
which  has  been  witnessed  in  recent  years  is  a 


The  High-price  Period  9 

special  phenomenon  whose  causes,  whatever 
they  may  be,  are  not  imbedded  in  the  perma- 
nent, the  underlying,  elements  of  the  existing 
order  of  society.  It  may  be  impossible  to 
assign  any  limit  either  to  the  duration  or  the 
extent  of  the  upward  trend;  it  may  be  impossible 
to  declare  with  confidence  that  a  downward 
trend  will  be  experienced  at  any  time  in  the 
near  future.  But,  on  the  other  hand,  if  any  man 
asserts  that  prices  will  continue  to  rise  for  an 
indefinite  period,  or  even  if  he  denies  that  they 
can  possibly  fall  in  a  reasonably  near  future,  the 
burden  of  proof  is  upon  him  to  establish  the 
truth  of  his  assertion.  In  default  of  such  proof 
— and  it  is  not  too  much  to  say  that  no  such 
proof  has  been  forthcoming — we  must  look 
upon  this  period  of  rapidly  advancing  prices 
as  a  chapter  of  economic  history  which  may 
come  to  an  end  at  any  time;  and  in  discussing 
possibilities  of  the  future  must  consider  how 
the  various  economic  classes  may  be  affected, 
not  only  by  a  continuance  of  the  recent  tend- 
ency, but  also  by  a  slowing  down  of  that  tend- 
ency, by  its  disappearance,  and  even  by  its 
reversal. 


CHAPTER  II 

PRICE  AND  COST 

In  the  modern  world — ^with  the  single  impor- 
tant exception  of  the  farmer's  home  supply  of 
home-raised  food — the  things  that  any  person 
acquires  for  his  own  use,  possession,  or  enjoyment 
he  acquires  through  the  medium  of  money.  He 
neither  makes  directly  (except  to  a  degree  so 
small  as  to  be  negligible)  the  things  that  he 
desires  to  possess,  nor  does  he  acquire  them  by 
directly  bartering  the  things  which  he  does 
make  for  the  things  which  he  desires  to  have. 
He  sells  for  money  the  things  that  he  produces 
or  the  services  that  he  performs,  and  with  that 
money  he  buys  the  things  that  he  wishes  to 
possess,  enjoy,  or  consume.  Accordingly  it  is 
in  terms  of  money  that  we  habitually  speak 
when  we  wish  to  measure  the  abundance  or  the 
niggardliness  with  which  any  particular  kind  of 
service  is  rewarded,  the  value  of  any  commodity, 
j{  the  ease  or  the  difficulty  with  which  any  desired 

object  may  be  obtained.     It   requires  only  a 

lO 


Price  and  Cost  ii 

little  effort  of  thought  to  go  behind  this  measure 
of  value,  of  reward,  of  cost;  but  even  that  slight 
requirement  is  not  automatically  fulfilled.  When 
we  do  not  stop  to  make  it,  we  are  prone  to  think 
of  a  rise  of  the  price  of  anything — an  increase 
in  the  number  of  dollars  one  has  to  pay  for  it — 
as  though  it  necessarily  meant  an  increase  in 
the  real  cost  of  it. 

But  the  real  cost  of  a  thing  to  any  particular 
person  is  not  to  be  measured  by  the  money  he 
paid  in  order  to  get  the  thing.  The  money  he 
spent  for  it  he  first  had  to  get;  and  what  the 
thing  really  and  truly  cost  him  was  not  that 
money,  but  what  he  had  to  give  to  get  the  money. 
The  form  of  barter  has  disappeared  through 
the  intervention  of  money;  but  the  essence  of 
barter  remains.  The  part  played  by  money  in 
the  carrying  on  of  the  world's  work  is  of  incal- 
culable service  to  mankind;  of  all  labor-saving 
contrivances  it  is  the  most  potent,  the  most 
pervasive,  the  most  invaluable.  But  it  is, 
after  all,  only  a  labor-saving  contrivance.  It 
does  infinitely  better,  and  infinitely  more 
economically,  what  barter  could  only  do  in  a 
clumsy  way  and  at  a  cost  so  great  as,  in  the 
vast  majority  of  cases,  to  be  absolutely  pro- 
hibitive; but  the   nature  of  the  thing  accom- 


12  Cost  of  Living 

plished  is  absolutely  the  same.  The  farmer 
sells  his  produce,  the  common  laborer  or  the 
skilled  mechanic  his  work,  the  professional 
man  his  expert  services,  even  the  business  man 
the  exercise  of  his  ability  and  energy  and  judg- 
ment and  enterprise,  primarily  for  money;  but 
the  money  is  prized,  not  for  itself,  but  for  what 
can  be  bought  with  it.  At  the  end  of  the  ac- 
count it  is  not  for  money  that  we  have  given 
the  commodities  which  w^e  have  produced  or  the 
labor  which  we  have  expended  or  the  services 
which  we  have  performed;  w^e  have  bartered 
them  for  other  commodities,  other  labor,  other 
services.  If  the  things  which  a  given  individual 
requires  for  his  "living"  have  risen  in  price — 
in  the  number  of  dollars  that  have  to  be  paid  for 
them — while  the  things  whereby  he  gets  his 
money  have  not  risen  in  price,  or  have  risen  in 
a  less  degree,  then  for  that  individual  there  has 
been  a  rise  in  the  cost  of  living;  otherwise  not. 

Now  there  is  no  doubt  that  in  this  substan- 
tial sense  there  has  been  a  serious  rise  in  the 
cost  of  living  for  large  classes  of  the  population. 
Perhaps  the  class  most  obviously  affected  in 
this  way  is  that  of  public  officials  whose  salaries 
are  fixed  by  law.  The  law  can  raise  these 
salaries,  to  be  sure,  and  in  many  instances  it 


Price  and  Cost  13 

has  done  so.  But  there  is,  in  general,  a  great 
deal  of  hesitation  about  making  such  a  change, 
and  justly  so,  for  an  official  salary,  once  raised 
by  law,  cannot  be  lowered  without  the  very 
greatest  difficulty;  and  yet  it  is  possible  that 
the  level  of  prices  may  in  the  future  recede  to 
what  it  has  been  in  the  past.  It  is  safe  to  say 
that,  as  time  goes  on,  if  prices  remain  at  their 
present  high  level  or  rise  still  higher,  one  after 
another  of  the  various  classes  of  salaried  em- 
ployees of  the  public  will  have  their  salaries 
raised  to  correspond;  indeed  that  process  has 
evidently  been  going  on  in  a  halting  and  ir- 
regular way.  In  the  meanwhile,  those  people 
suffer  a  very  real  hardship  in  the  shape  of  a 
substantial  increase  of  their  cost  of  living;  they 
have  to  pay  more  money  for  the  same  goods  or 
services,  and  the  money  that  they  get  for  their 
own  services  is  no  more  than  before.  There 
is,  indeed,  one  consolation  for  them,  or  for  such 
of  them  as  are  of  a  philosophical  turn  of  mind. 
They  lag  behind  other  classes  in  getting  an 
increased  price  for  their  services  at  a  time  of 
rising  prices,  owing  to  the  slowness  of  legislation 
to  make  the  necessary  adjustment;  but  by  the 
same  token  they  will  lag  behind  other  classes 
— and  probably  in  an  even  greater  degree — in 


14  Cost  of  Living 

getting  the  price  of  their  services  reduced  when 
a  time  of  faUing  prices  sets  in.  What  public 
salaries  were  reduced  during  the  twenty  years 
or  more  of  falling  prices  which  came  to  an  end 
about  1897? 

What  is  true  of  the  salaried  public  employee 
is  in  a  great  measure  true  also  of  the  salaried 
man  in  private  employment.  The  employer 
hesitates  long  to  advance  salaries,  knowing 
that  any  such  advance  is  apt  to  be  regarded  as 
permanent;  and,  moreover,  it  is  seldom  easy  for 
the  salaried  man  to  bring  pressure  to  bear  upon 
his  employer,  owing  to  the  many  obstacles  that 
have  to  be  encountered  in  finding  a  new  position. 
To  the  employer  the  advance  is  a  thing  not  to 
be  lightly  granted,  owing  to  the  difficulty  or  un- 
pleasantness of  undoing  it  if  times  change;  to 
the  employee  it  is  a  thing  not  to  be  lightly  de- 
manded, owing  to  the  personal  character  of  the 
relation  and  the  great  uncertainty  of  the  pros- 
pect of  establishing  a  similar  relation  else- 
where. So  here  again  the  salaried  man  must,  in 
a  period  of  rising  prices,  suffer  for  a  long  time, 
without  remedy,  the  hardships  of  a  real  increase 
in  the  cost  of  living;  but  if  at  last  the  remedy  is 
applied — if  at  last  his  salary  is  raised  to  corre- 
spond— he  bids  fair  to  experience,  in  a  time  of 


Price  and  Cost  15 

falling  prices,  a  gain  of  somewhat  the  same 
extent,  owing  to  similar  reasons  operating  in 
the  opposite  direction. 

The  case  of  those  who  work  for  daily  wages, 
while  bearing  considerable  resemblance  in  kind 
to  that  of  the  salaried  classes,  differs  materi- 
ally from  it  in  degree.  There  is  here  suffering  of 
the  same  nature,  and  brought  about  by  causes 
of  the  same  general  character;  but  adjustment 
is  not  so  difficult  and  is  apt  to  be  far  more 
rapid.  Fluctuations  in  rates  of  wages  being  a 
matter  of  common  occurrence  even  when  no 
notable  change  has  taken  place  in  the  general 
level  of  prices,  the  pressure  for  a  compensatory 
adjustment  when  such  a  change  is  taking  place 
meets  with  no  extraordinary  obstacle.  Em- 
ployers do  not,  as  a  rule,  grant  the  advance 
immediately  the  reason  for  it  makes  its  appear- 
ance; but  neither  do  they  look  upon  the  making 
of  it  as  a  step  whose  consequences  they  are 
bound  to  feel  for  a  long  future.  Workingmen, 
on  their  part,  do  not  strike  the  very  moment 
they  begin  to  feel  something  of  the  pinch  of 
high  prices;  but  they  will  not  bear  it  long  with- 
out making  a  determined  effort  to  have  their 
wages  raised.  There  is  a  struggle,  to  be  sure; 
the  rise  of  pay  is  very  apt  to  lag  behind  the 


i6  Cost  of  Living 

rise  of  prices;  but  the  interval  is  not  so  great 
as  in  the  case  of  the  salaried  classes.  The 
"shrinking  dollar" — which,  by  the  way,  is  the 
same  kind  of  thing,  essentially,  as  the  "cheap 
dollar,"  the  dollar  desired  by  the  free-silver 
men  or  the  Greenbackers — is  a  hardship  to  the 
wage-earner.  It  means  a  high  cost  of  hving  to 
him  during  the  entire  time  which  is  necessary  for 
the  requisite  adjustment  of  wages  to  prices;  and 
that  time  is  apt  to  be  of  considerable  duration. 
Altogether  different  from  the  case  of  the 
salaried  man  or  the  case  of  the  wage-earner  is 
that  of  the  independent  producer  or  business 
man.  A  general  increase  of  prices  affects  his 
money  income  as  immediately  as  it  does  his 
money  outgo.  Indeed,  speaking  broadly,  the 
effect  upon  his  income  is  more  immediate.  For 
he  gets  at  once  a  higher  price  for  the  goods  he 
sells;  and,  while  he  also  pays  at  once  a  higher 
price  for  the  goods  he  buys,  he  does  not  at 
once  pay  a  higher  price  for  labor,  for  rent,  and 
for  many  other  factors  of  business,  such  as 
freight,  postage,  gas,  electricity,  etc.  Taking 
producers  and  business  men  as  a  class,  and 
supposing  all  prices  to  rise  by  a  uniform  per- 
centage, this  class  would,  during  the  period  of 
adjustment,  gain  what  the  salaried  and  wage- 


Price  and  Cost  17 

earning  classes  lost — and  somewhat  more,  ow- 
ing to  the  comparatively  fixed  character  of 
the  rates  governing  expenditures  of  the  sort 
above  referred  to.  Accordingly,  a  time  of  ris- 
ing prices  would,  for  this  class,  not  be  a  time 
of  rising  cost  of  living,  but  quite  the  reverse. 
The  net  money  income  of  their  business  would 
be  increased  by  a  greater  percentage  than  the  net 
money  outgo  which  is  required  for  their  "living/* 
As  a  matter  of  fact,  prices,  of  course,  do  not 
rise  uniformly.  Some  are  very  slow  to  rise 
at  all;  others  fail  to  rise  to  the  average  amount; 
still  others  rise  much  more  than  the  average. 
It  is,  however,  fairly  safe  to  say  that  producers 
and  business  men  as  a  rule  are  gainers  in  a 
period  of  rising  prices;  in  the  main,  the  question 
is  not  whether  they  gain,  but  how  much  they 
gain.  And  of  course  those  classes  of  producers 
gain  the  most  whose  product  has  risen  most  in 
price.  During  the  present  high-price  period 
there  is  no  doubt  as  to  the  status  in  this  regard 
of  one  ver>'  large  class  of  producers.  The  price 
of  food  products  has  risen  far  more  than  has  the 
general  run  of  prices;  and  the  farmer  has  waxed 
fat  accordingly.  If  a  considerable  part  of  the  rise 
has  been  intercepted  by  the  middlemen,  there 
is  no  reason  to  suppose  that  the  percentage  inter- 


1 8  Cost  of  Living 

cepted  has  been  any  greater  than  before;  while 
the  farmer's  expenditure  for  labor  has  risen  in 
a  far  smaller  ratio  than  the  price  of  his  products; 
and  the  expense  of  transportation  (which  is  of 
the  same  nature,  so  far  as  the  farmer  is  con- 
cerned, as  the  portion  of  the  price  of  his  product 
that  goes  to  the  middleman)  has  hardly  risen 
at  all.  The  consequence  is  that,  whereas 
twenty  years  ago  the  word  *' farmer"  was  habitu- 
ally associated  in  the  American  mind  with 
the  word  "mortgage,"  the  experimental  psychol- 
ogist would  find  to-day  that  the  ideas  most 
promptly  brought  up  by  its  mention  would  be 
those  of  the  automobile,  the  Victrola,  and  the 
player-piano.  For  the  farmer,  speaking  gener- 
ally, this  is  not  a  time  of  high  cost  of  living, 
but  of  high  income  and  easy  acquirement  of 
comforts  and  luxuries  not  dreamed  of  in  his 
philosophy  a  quarter  of  a  century  ago. 

It  is  less  easy  to  set  down  what  has  hap- 
pened to  manufacturers,  and  merchants,  and 
men  in  financial  lines  of  business,  as  a  conse- 
quence of  the  rising  prices  of  the  past  twelve  or 
eighteen  years.*     But  even  in  cases  where  the 

*The  profound  disturbance  caused  by  the  great  war  is,  of 
course,  entirely  ignored  in  this  discussion;  nor  is  account  taken 
of  those  temporary,  and  yet  important,  vicissitudes  of  business 
~bad  times  alternating  with  good  times — which  take  place  at 
intervals,  whether  prices  be,  in  general,  rising  or  falling. 


Price  and  Cost  19 

scale  of  prices  commanded  by  these  classes  has 
not  risen,  or  has  not  risen  as  much  as  has  the 
general  level,  it  would  be  rash  to  pronounce 
that  they  have  been  losers,  or  even  that  they 
have  not  been  gainers.  In  many  lines  of  manu- 
facturing, and  of  mercantile  and  financial  busi- 
ness, there  is  a  tendency  toward  lowering  of  the 
real  cost  per  unit  of  output,  or  per  unit  of  busi- 
ness; so  that  if  prices  all  round  were  simply 
maintained  at  a  constant  level  there  would  be 
to  these  people  an  increase  of  profit  as  years 
went  by.  This  tendency  arises,  in  the  case  of 
manufacturers,  both  from  improvements  in 
processes  and  from  the  increasing  scale  upon 
which  operations  are  conducted;  in  the  case  of 
mercantile  and  financial  business  chiefl}'  from 
the  latter  cause.  Under  ordinary  circumstances 
— ^that  is,  when  there  is  no  great  general  rise 
in  the  scale  of  prices — competition  tends  to 
wipe  out  this  extra  profit  through  a  reduction 
of  prices  in  the  domain  immediately  affected 
by  the  economies  in  question;  the  benefit  of 
those  economies  tends  to  go  to  the  consumer, 
leaving  the  manufacturer  or  dealer  on  the  whole 
just  about  as  well  off  as  before.  At  a  time 
of  general  advance  in  the  price-level  we  have 
thus  two  opposing  tendencies,  one  making  for 


20  Cost  of  Living 

higher  prices  and  one  for  lower;  the  one  required 
as  a  counterpoise  for  the  general  rise  of  prices, 
the  other  as  a  counterpoise  for  the  special 
economies  of  the  business  in  question.  Thus 
it  may  perfectly  well  be  that,  though  prices 
in  a  given  line  of  industrial  or  commercial  or 
financial  business*  have  not  risen,  or  have  risen 
less  than  the  general  run  of  prices,  yet  the 
persons  in  that  line  have  not  suffered  at  all 
through  the  general  rise;  the  compensatory 
rise  for  them  having  been  balanced,  in  whole 
or  in  part,  by  the  fall  that  would  naturally  have 
taken  place  in  the  ordinary  course  of  economic 
development.  But,  while  all  these  considera- 
tions complicate  the  question  of  how  any  given 
class  of  producers  or  business  men  have  fared, ^ 
they  do  not  disturb  the  broad  conclusion  that 

*There  is  something  elliptical,  and  more  or  less  vague,  in  speak- 
ing of  the  "prices"  involved  in  commercial  or  financial  business. 
To  specify  exactly  what  is  meant  would  involve  a  degree  of  detail 
and  complexity  unsuited  to  this  simple  little  book.  But,  broadly 
speaking,  the  "price"  I  have  in  mind  is  the  price  of  the  business 
man's  part  in  the  affair — the  gross  return  he  gets  for  transacting 
a  given  piece  of  business;  from  which  gross  return  his  net  return 
is  obtained  by  deducting  the  due  proportion  of  his  "overhead" 
expenses,  as  well  as  any  direct  expense  involved  in  the  particular 
piece  of  business  in  question.  For  example,  the  "price"  that  a 
wholesale  merchant  gets  in  the  sale  of  a  bill  of  goods  through 
the  agency  of  a  travelling  salesman  is  the  difference  between 
what  he  charges  the  retailer  and  what  he  himself  paid  for  the 
goods;  while  his  net  return  on  the  transaction  is  obtained  by  de- 
ducting a  proper  part  of  the  salary  and  expenses  of  the  travelling 
salesman  and  also  a  proper  part  of  the  rent,  salaries,  and  general 
expenses  involved  in  carrying  on  the  business  as  a  whole. 


Price  and  Cost  21 

a  period  of  rising  prices  brings  no  hardship 
upon  these  classes  in  general,  but  on  the  con- 
tary  brings  about  an  increase  in  their  real  gains. 
They  experience  a  diminution  in  the  real  cost 
of  their  "living";  or  at  least  they  do  so  unless 
the  particular  things  in  which  their  "living"  is 
embodied  have  risen  in  price  very  much  more 
than  have  things  in  general.  And  in  the  pres- 
ent instance  this  last  is  certainly  not  to  any 
great  extent  the  case;  since  the  only  important 
products  that  have  risen  abnormally  in  price, 
namely  food,  constitute  but  a  small  proportion 
of  the  total  expenditure  of  the  well-to-do  classes. 
An  incidental  consequence  of  this  prosperous 
state  of  the  business  classes  at  a  time  of  rising 
prices  should  be  mentioned  here,  for  it  mitigates 
to  a  not  inconsiderable  extent  the  evil  effects 
upon  the  working  people  of  the  sluggishness  of 
the  rise  of  wages.  Even  before  wages  have 
risen  in  response  to  the  pressure  of  rising  prices 
— even,  that  is,  during  the  time  when  the  work- 
ingman's  cost  of  living  is  rismg  because  his 
daily  money  wages  no  longer  purchase  as  much 
as  they  did — there  is  apt  to  be  some  compen- 
sation to  him  in  the  shape  of  greater  regularity 
of  employment.  So  long  as  wages  have  not 
risen  and  prices  have,  the  employer  makes  an 


22  Cost  of  Living 

unusual  profit,  and  thus  is  stimulated  to  expand 
his  business,  or  at  least  to  keep  it  running  on 
full  time,  when  he  might  otherwise  at  intervals 
have  shut  down  or  relaxed  his  production. 
Sooner  or  later,  this  stimulus  to  production, 
this  accentuated  demand  for  labor  due  to  in- 
crease in  profits,  normally  brings  about  a  rise 
in  the  rate  of  wages;  but  even  before  that  comes 
about,  the  wage-earner,  though  his  cost  of  living 
is  undeniably  increased,  may  find  the  burden 
of  that  increased  cost  somewhat  lessened  by  a 
diminution  of  the  losses  he  suffers  through  un- 
employment. 

All  the  classes  of  incomes  we  have  thus  far 
been  considering  are  incomes  derived,  day  after 
day,  or  month  after  month,  or  year  after  year, 
as  a  result  of  activities  put  forward  in  those 
days,  or  months,  or  years.  But  there  are 
several  great  classes  of  incomes  which  the  pos- 
sessors obtain  in  satisfaction  of  obligations  due 
to  them  by  others,  obligations  in  many  instances 
incurred  years  before,  and  continuing  at  a  fixed 
money  rate  for  years  after.  Interest  on  bonds 
issued  by  governments  or  corporations,  interest 
on  long-term  mortgages,  ground  rents,  either 
irredeemable,  or  having  a  long  term  of  years  to 
run,  or  redeemable  at  the  pleasure  of  the  lessee 


Price  and  Cost  23 

at  a  fixed  capitalization,  are  instances  of  this 
kind  of  income.  In  a  time  of  rising  prices 
every  person  whose  income  consists  in  whole 
or  in  part  of  this  kind  of  revenue  suffers  through 
that  rise  an  increase  in  the  true  cost  to  him  of 
the  things  for  which  he  spends  his  income. 
He  gets  the  same  number  of  dollars  annually 
as  though  prices  had  not  risen,  and  these  dollars 
have  less  purchasing  power  than  they  had  be- 
fore; and  this  loss  continues  (supposing  that  the 
high  prices  continue)  without  any  compensatory 
gain  during  the  entire  term  for  which  the  ob- 
ligation runs. 

Whether,  at  the  end  of  that  term,  anything 
may  be  expected  to  happen  which  will  restore 
such  incomes  to  their  previous  actual  worth, 
their  previous  actual  purchasing  power,  is  a 
highly  interesting  question.  And,  broadly 
speaking,  the  answer  to  that  question  is  not 
difficult.  But  we  must  make  a  distinction — 
one  that  is  very  important,  though  often  over- 
looked. The  answer  depends,  of  course,  upon 
what  may  be  expected  to  happen  to  the  pre- 
vailing rates  of  interest;  the  investor  in  a  mort- 
gage or  a  bond  gets  back  his  principal  at 
maturity,  neither  increased  nor  diminished,  and 
his  future  income  depends  on  the  rate  of  interest 


24  Cost  of  Living 

at  which  he  can  reinvest  it.  Now  the  distinc- 
tion above  referred  to  is  the  distinction  be- 
tween high  prices  and  rising  prices.  High 
prices,  as  such — or  low  prices,  as  such — cannot 
affect  the  rate  of  interest  at  all.  If  all  prices  were 
doubled — permanently  doubled,  and  known 
to  be  permanently  doubled — that  would  set  in 
motion  no  forces  operating  upon  either  lender 
or  borrower  to  cause  the  rate  of  interest  to  be 
either  greater  or  less  than  before.  If  the  pre- 
vailing rate  in  a  certain  class  of  loans  was  5 
per  cent,  at  the  low  level  of  prices,  there  is  no 
reason  why  it  should  not  be  5  per  cent,  at 
the  high  level.  It  is  true  that  fifty  dollars 
given  as  interest  on  a  loan  of  a  thousand  dollars 
would  have  only  half  the  purchasing  power 
that  fifty  dollars  had  before;  but  so  would  the 
thousand  dollars  loaned  have  only  half  the 
purchasing  power  that  a  thousand  dollars  had 
before.  So  much  for  a  time  of  high  prices  as 
such — stationary  high  prices.  But  it  is  dif- 
ferent in  a  period  of  rising  prices,  and  especially 
a  fairly  long  period  of  somewhat  steadily  rising 
prices.  In  such  a  period  the  dollar  paid  as 
interest  at  the  end  of  the  year  has  less  value — 
less  purchasing  power — than  had  one  of  the 
loaned  dollars  at  its  beginning;  the  discrepancy 


Price  and  Cost  25 

becomes  greater  the  second  year,  and  so  on; 
and,  what  is  vastly  more  important,  the  prin- 
cipal, when  returned  at  maturity  of  the  loan, 
though  it  is  the  same  number  of  dollars,  repre- 
sents a  materially  smaller  value.  In  order 
that  the  lender  shall  have  really  and  truly 
got  back  what  he  loaned,  plus  5  per  cent,  in- 
terest on  his  money,  it  is  necessary  for  him  to 
get,  in  dollars,  more  than  5  per  cent. — perhaps 
five  and  a  half,  or  six,  or  seven.  But,  one  may 
ask,  is  there  any  reason  to  suppose  that  this 
will  really  come  about?  What  is  going  to 
actually  cause  the  change  ?  People  don't  reason 
these  things  out,  it  may  be  said;  borrowers  pay 
what  they  have  to  pay,  and  no  more,  without 
bothering  their  heads  over  the  level  of  prices, 
and  certainly  without  worrying  over  the  ups  and 
downs  of  the  lender's  true  income.  That  is  all 
perfectly  true;  but  the  forces  making  for  the 
adjustment  of  the  rate  of  interest  to  the  realities 
of  the  case  are  at  work  none  the  less  effectively, 
though  they  are  not  present  in  the  conscious- 
ness of  either  party.  What  makes  the  rate 
of  interest  on  a  given  class  of  loans  or  invest- 
ments 5  per  cent.,  or  4  per  cent.,  or  6  per 
cent.,  is  the  attractiveness  of  the  transaction 
to  borrowers  on  the  one  hand  and  to  lenders 


26  Cost  of  Living 

on  the  other;  and  if  the  rate  remained  unchanged 
in  a  period  of  rising  prices  business  borrowers 
would  find  by  actual  experience  that  borrowing 
was  attended  with  greater  advantage  than  usual 
and  would  want  to  borrow  more,  while  business 
lenders  would  find  that  lending  was  attended 
with  less  advantage  than  usual  (as  compared 
with  other  ways  of  employing  their  money); 
thus  the  demand  for  loans  would  tend  to  in- 
crease and  the  supply  of  loans  would  tend  to 
diminish.  And  equilibrium  between  supply 
and  demand  could  only  be  reestablished  by  a 
rise  in  the  rate  of  interest — in  other  words,  by 
an  increase  of  the  inducement  to  lend  and  a 
diminution  of  the  inducement  to  borrow.  It 
thus  appears  that  although  an  unexpected  rise 
of  prices — an  unexpected  fall  in  the  purchasing 
power  of  the  dollar — has  the  effect  of  inflicting 
upon  the  lender  of  money  at  interest  an  uncom- 
pensated loss,  this  is  not  what  will  normally 
happen  in  a  clearly  marked  period  of  rising 
prices;  the  loss  on  the  true  value  of  his  principal 
will  probably  be  counterpoised  by  a  rise  in  the 
rate  of  interest.  And  the  expectation  thus 
justified  by  theoretical  consideration  seems  to 
have  been  amply  verified  by  experience.  Thus 
the  high  rates  of  interest  that  have  obtained 


Price  and  Cost  27 

during  the  present  period  of  rising  prices  on 
national,  municipal,  and  railway  bonds,  and  on 
such  "gilt-edge"  obligations  as  British  consols, 
are  in  striking  contrast  with  the  low  rates  that 
ruled  during  the  preceding  period  of  falling 
prices — when,  of  course,  precisely  the  opposite 
set  of  results  were  to  be  expected  from  the  same 
considerations. 


CHAPTER  III 

"COST  OF  HIGH  LIVING" 

In  the  preceding  chapters  attention  has  been 
drawn  to  the  difference  between  high  prices  and 
high  cost  of  Hving,  and  a  brief  survey  has  been 
made  of  some  of  the  principal  points  practically 
involved  in  that  difference.  It  has  been  seen 
that  although  high  prices  may  not  at  all  mean 
a  high  cost  of  living,  yet  in  a  period  of  rising 
prices  they  do  mean  that  to  a  very  large  part 
of  the  population,  and  particularly  to  that  part 
most  seriously  affected  by  a  high  cost  of  living — 
namely,  the  wage-earning  and  salaried  classes — 
while  there  are  other  classes  to  which  the  rise 
of  prices  is  a  benefit  instead  of  an  injury.  x 

In  all  this  we  have  not  really  looked  at  the 
specific  meaning  of  the  phrase  "cost  of  Hving" 
at  all.  We  have  tacitly  assumed  that  the 
"living"  in  question  is  unchanged  in  character; 
and  what  we  have  been  thinking  of,  in  all  our 
comparisons,  is  the  variation  that  may  have 
taken  place  in  the  cost  of  things  in  general — 

28 


**Cost  of  High  Living"  29 

not  the  cost  of  "Hving"  in  particular.  The 
cost  of  ''Hving"  is  of  course  subject  to  variation 
not  only  through  a  change  in  the  cost  of  ob- 
taining the  selfsame  set  of  things,  but  also 
through  a  change  in  the  quality,  or  quantity, 
or  kind,  or  range,  of  the  things  that  constitute 
the  "living" — or  in  a  word,  let  us  say,  through 
a  change  in  the  standard  of  living.  And  if 
the  standard  of  living  rises — if  the  luxuries  of 
yesterday  are  the  necessities  of  to-day,  in  any 
given  class  of  the  population — then,  other 
things  being  equal,  the  cost  of  living  in  that 
class  must  rise  correspondingly.  But  obviously 
this  kind  of  rise  in  the  cost  of  living  is  totally 
different  in  nature  from  that  which  we  have 
been  discussing  hitherto. 

As  a  matter  of  fact,  this  very  thing  is  taking 
place  on  a  large  scale,  in  almost  every  class  of 
the  population — probably  in  a  greater  or  less 
degree  in  every  class.  Some  persons  have 
been  so  impressed  with  the  w^idespread  preva- 
lence of  this  tendency  that  they  have  gone  so 
far  as  to  say  that  it  constitutes  the  whole  of  that 
phenomenon  which,  under  the  name  of  high  cost 
of  living,  has  been  so  vexing  the  thought  of  the 
world;  or  so  nearly  the  whole  that  the  rest  is  of 
no  serious  importance.     And  this  view  has  been 


30  Cost  of  Living 

cleverly  summed  up  in  the  epigram  that  the 
trouble  is  not  with  the  high  cost  of  living  but 
with  the  cost  of  high  living. 

The  phrase  is  not  without  value;  but  the  view 
that  it  stands  for  is  too  manifestly  false  to  re- 
quire extended  reputation.  Much  of  the  high 
cost  of  living  that  people  complain  of — very 
much,  especially,  of  that  which  is  complained 
of  by  those  who  have  the  least  right  to  com- 
plain at  all — is  undoubtedly  to  be  classed  as  cost 
of  high  living  rather  than  as  high  cost  of  Uving; 
but  to  assert  that  all  of  it,  or  even  a  great  part 
of  it,  in  the  case  of  the  less  fortunate  classes,  is 
of  this  nature  is  preposterous.  When  the  price 
of  eggs,  and  vegetables,  and  meats — especially 
pork  and  the  cheaper  cuts  of  beef — has  risen 
50  or  60  or  80  per  cent.,  then  unless  and  until 
this  is  counteracted  by  an  increase  in  wages  or 
salaries,  workers  with  modest  incomes  suffer  an 
increase  in  the  cost  of  living  which  cannot  be 
dismissed  with  an  epigram.  But  there  is  another 
reason,  even  more  conclusive,  though  less  obvi- 
ous and  perhaps  less  tangible,  for  rejecting  any 
such  view  of  what  has  been  taking  place.  It 
involves  a  fallacy  which  we  shall  have  occasion 
to  note  in  connection  with  several  other  phases 
of  the  cost-of-Hving  discussion.     This  tendency 


"Cost  of  High  Living"  31 

to  better  living,  this  gradual  raising  of  standards, 
this  subtle  but  steady  growth  of  the  list  of  things 
which,  in  any  given  walk  of  life,  comes  to  be  re- 
garded as  necessary  to  *'hving,"  is  no  sudden 
development  of  the  last  ten  or  twenty  years. 
It  has  been  going  on  as  far  back  as  anybody  can 
remember.  It  has  doubtless  played  its  part  in 
increasing  the  cost  of  living;  but  how  comes  it 
that  nobody  was  talking  about  the  high  cost  of 
living  until  within  the  last  half  dozen  or  dozen 
years?  That  tendency  to  inch  up  on  your 
margin — to  transmute  economic  advances  into 
advances  in  the  standard  of  living — has  been 
with  us  all  along;  how  is  it  that  it  is  only  just 
now — only  in  these  last  years — that  there  has 
arisen  a  world-wide  chorus  of  complaint  over  the 
difficulty  of  maintaining  the  standard?  Some- 
thing new  has  happened;  there  is  something  in 
the  situation  that  was  not  there  before.  And 
this  something  new  is  not  the  cost  of  high  living, 
but  the  high  cost  of  living.  The  fallacy — which, 
as  has  already  been  stated,  we  shall  encounter 
again  in  a  later  chapter — is  that  of  explaining  a 
great  and  undeniable  change  by  pointing  to  a 
factor  which  has  been  in  operation  all  along,  and 
whose  intensity  has  either  not  been  augmented 
at  all,  or  at  least  has  not  been  augmented  in  any 


32  Cost  of  Living 

such  extraordinary  degree  as  would  be  requisite 
for  the  explanation. 

It  remains,  however,  to  give  some  considera- 
tion to  the  degree  in  which,  as  a  matter  of  fact, 
changes  of  the  nature  suggested  by  the  phrase 
"cost  of  high  Hving"  really  enter  into  what 
usually  passes  as  high  cost  of  Hving,  Undenia- 
bly, there  are  many  such.  But  here  again  we 
must  distinguish.  Few  people  are  really  deceived 
into  confusing  the  one  kind  of  increase  with 
the  other,  when  the  former  takes  the  shape  of 
conspicuous  additions  to  the  list  of  Hving  require- 
ments, or  even  of  striking  and  palpable  improve- 
ments in  point  of  quality.  The  complaint, 
indeed,  that  it  costs  more  and  more  to  live  as  one 
"is  expected  to  live,"  or  as  one  "has  to  Hve," 
is  of  almost  immemorial  standing  among  the 
comparatively  well-to-do  classes;  but  this  rising 
scale  of  expenditure,  due  to  women  "needing" 
ten  dresses  instead  of  two,  to  men  smoking  ex- 
pensive Havana  cigars  instead  of  cheap  domestic 
ones  or  pipes,  to  the  children  being  sent  to  high- 
priced  private  schools  instead  of  the  public 
schools,  to  the  spending  of  long  vacations  at 
luxurious  hotels  instead  of  short  holidays  at 
simple  country  boarding-houses,  to  the  keeping 
of  automobiles  and  chauffeurs  where  not  even  a 


**Cost  of  High  Living"  33 

carriage  was  kept  before — this  sort  of  thing 
everybody  understands  to  be  quite  distinct  from 
that  high  cost  of  Hving  about  which  the  world 
has  recently  been  so  pecuharly  concerned. 

But  there  are  many  insidious  or  inconspicuous 
changes  of  standard  which  do  merge  unnoticed 
with  the  general  cost  of  living,  and  give  it  the 
appearance  of  having  risen  more  than  it  really 
has.  Some  good  illustrations  of  this  may  be 
found  in  that  field  in  which  the  pinch  of  advanc- 
ing cost  has  been  most  acutely  felt,  that  of  food 
prices.  The  case  of  milk  is  particularly  striking. 
It  is  not  necessary  to  cite  statistics,  or  to  appeal 
to  official  reports,  in  order  to  see  that  when  we 
speak  of  the  price  of  milk  to-day  we  have  refer- 
ence to  a  very  different  thing  from  what  we 
should  have  meant  twenty  years  ago.  The  same 
class  of  people  who  were  then  getting  their  milk 
delivered  from  big  cans,  with  no  one  knew  what 
admixture  of  water  (not  to  speak  of  accidental 
but  more  dangerous  ingredients)  now  get  it 
delivered  in  air-tight  bottles,  and  of  a  virtually 
guaranteed  degree  of  richness.  No  statistics 
could  testify  to  the  change  with  such  convincing- 
ness as  does  the  complete  disappearance  of  the 
milkman  joke  from  the  funny  columns  of  the 
newspapers;  the  gibe  about  the  dairyman  and 


34  Cost  of  Living 

the  pump  is  as  much  of  a  **back  number"  as 
the  horse  car.  Bad  eggs,  too,  which  used  to  be 
almost  as  favored  a  subject  for  the  newspaper 
jester  as  watered  milk,  are  nearly  as  hard  to  find 
in  the  cheap  restaurants  of  the  modern  type  as 
good  eggs  were  in  their  predecessors  of  twenty 
years  ago.  And  while,  as  regards  articles  of 
food  in  general,  there  has  been  no  such  raising 
of  the  standards  of  quality,  there  has  been  a 
marked  change  in  the  conveniences  of  buying 
and  delivery;  part  of  the  enhancement  of  the 
prices  paid  for  provisions  at  retail  is  due  to 
the  wide  prevalence  of  the  custom  of  ordering 
by  telephone  and  the  very  general  practice  of 
having  every  retail  purchase  delivered  by  the 
dealer  at  the  purchaser's  home.  In  any  statis- 
tical study  of  the  rise  of  the  price  of  food  these 
considerations  are  of  sufficient  importance  to 
^  demand  being  taken  seriously  into  account. 

Concerning  one  of  the  very  important  ele- 
ments of  the  cost  of  living  for  nearly  all  dwellers 
in  cities,  namely,  house  rent,  very  little  has  been 
ascertained  by  statisticians;  and  indeed  very 
little  seems  to  be  said  about  it  in  discussions  of 
the  subject  generally.  It  seems  plain,  however, 
that  house  rents  have  by  no  means  shared  in 
the  general  rise  of  prices  to  anything  like  the 


**Cost  of  High  Living"  35 

average  degree.  However  this  may  be,  it  is 
necessary  to  bear  in  mind  that  in  this  matter 
there  is  a  pretty  steady  rise  of  standards  which 
people  are  prone  to  overlook,  and  in  consequence 
of  this  there  may  well  be  a  rise  in  rates  signifying 
not  increasing  price  for  the  same  thing,  but  ad- 
vancing requirements  in  the  character  of  the 
thing  itself.  Time  was,  and  not  so  very  long 
ago,  when  bathrooms  were  a  luxury;  they  next 
became  a  very  general  requirement  of  comfort; 
and  now  they  are  regarded  as  almost  an  absolute 
necessity.  With  gas  and  electricity  a  similar 
story  is  being  told;  and  hardwood  finishings,  and 
marble  steps,  and  a  dozen  other  little  points  are 
in  the  same  case.  Moreover,  the  smooth  pave- 
ments which,  on  almost  the  humblest  streets 
to-day,  put  to  shame  the  pavements  of  our 
Fifth  Avenues  of  half  a  century  ago,  the  modern 
sewerage  and  street  lighting,  the  activities  of 
health  departments,  etc.,  have  to  be  paid  for  in 
some  way;  the  benefits  of  these  things  are  shared 
by  householders  generally,  and  a  good  part  of 
the  cost  is  paid  by  householders  in  the  shape  of 
rent.  Accordingly,  it  is  likely  that,  whatever 
may  have  been  the  apparent  average  rise  of 
rents,  a  not  inconsiderable  part  of  it  is  to  be 
ascribed  to  a  rise  of  standards. 


36  Cost  of  Living 

But,  after  all  possible  allowance  is  made  for 
factors  of  this  nature — for  those  advancing 
demands  which  are  made  so  insensibly  that  they 
are  apt  to  escape  notice — the  bulk  of  the  rise  in 
the  cost  of  living,  as  measured  in  money,  re- 
mains. It  is  a  real  thing  in  the  objective  world, 
not  a  mere  "state  of  mind";  and,  unless  coun- 
teracted in  the  case  of  any  class  by  a  rise  in  the 
money  income  prevaiHng  in  that  class,  it  is  a 
burden  seriously  affecting  their  lives.  And  it  is 
only  fair  to  add  that,  even  as  regards  some  ele- 
ments of  the  "high  cost  of  Uving"  which  clearly 
come,  in  a  modest  way,  under  the  head  of  "cost 
of  high  living,"  there  is  a  standpoint  from  which 
they  may  justly  be  regarded  as  forming  part  of 
the  consequences  of  the  general  rise  of  the  price- 
level.  For  in  these  modern  days  of  constant 
development  of  science  and  invention,  the  tend- 
ency is  to  reduce  the  cost  of  a  vast  number  of 
things  that  conduce  to  comfort  or  pleasure,  and 
to  place  not  only  these,  but  other  things  un- 
thought  of  before,  within  the  reach  of  a  large 
part  of  the  population.  A  standard  which,  by 
the  actual  count  of  material  things,  is  higher 
absolutely  than  that  of  ten  years  ago,  may  be 
no  higher  relatively  to  the  productive  efficiency 
of  the  world  at  the  respective  times.     So  much 


"Cost  of  High  Living"  37 

of  a  rise  of  standard  as  would  correspond,  in  a 
general  way,  to  this  increasing  efficiency,  might 
well  be  regarded  as  normal — as  a  mere  matter 
of  course;  and  to  the  actual  increase  of  the  cost 
of  living  at  a  stationary  standard  it  might  be 
claimed  that  an  addition  to  cover  this  normal 
rise  ought  to  be  made,  if  we  are  to  estimate 
correctly  the  full  extent  of  what  has  happened 
in  the  way  of  high  cost  of  living.  That  there 
is  no  method  of  computing  this,  it  is  hardly 
necessary  to  say;  and  numerical  estimates  of  the 
increase  in  the  cost  of  living  are  of  course  in- 
tended to  relate  to  comparisons  in  which  the 
same  standard  is  assumed  at  the  end  as  at  the 
beginning  of  a  period. 


CHAPTER  IV 

VALUE  OF  THE  DOLLAR 

We  have  been  having  a  good  deal  to  say  about 
a  rise  or  fall  in  the  "level  of  prices,"  a  fall  or  rise 
in  the  "purchasing  power  of  the  dollar" — or, 
more  briefly,  in  the  "value  of  the  dollar" — 
without  troubling  ourselves  about  the  definition 
of  these  terms.  When  «// prices  are  rising  there 
is  no  need  of  a  definition  to  assure  ourselves  that 
the  level  of  prices  is  rising,  or,  what  is  the  same 
thing,  that  the  value  of  the  dollar  is  falling. 
And  if  all  prices  have  risen  by  precisely  the  same 
percentage  there  is  no  need  of  any  definition  in 
order  to  justify  the  statement  that  the  price- 
level  has  risen  by  that  same  percentage,  or  the 
statement  that  the  value  of  the  dollar  has  fallen 
by  a  corresponding  percentage.  If  all  prices, 
for  instance,  were  25  per  cent,  higher  to-day 
than  they  had  been  five  years  ago,  then  it  would 
evidently  be  proper  to  say  that  the  price-level 
had  risen  by  25  per  cent.,  and  that  the  value  of 
the  dollar  had  fallen  b}'  20  per  cent.;  for  a  given 

38 


Value  of  the  Dollar  39 

quantity  of  anything  would  sell  for  five  fourths 
as  many  dollars  as  it  did  before,  and  a  given 
number  of  dollars  would  buy  four  fifths  as  great 
a  quantity  of  anything  as  it  did  before. 

But  prices  never  do  vary  in  this  uniform 
way;  some  rise  or  fall  faster  than  others,  and 
almost  always  some  fall  while  others  rise.  If 
the  increases  of  price  are  just  balanced  by 
the  decreases,  we  ought  of  course  to  say  that 
the  price-level — the  general  price-level — has 
remained  stationary;  if  the  increases  pre- 
ponderate we  should  say  that  the  price-level 
has  risen;  and  if  the  decreases  preponderate 
we  should  say  that  it  has  fallen.  But  what  do 
we  mean  by  all  this?  How  are  we  to  strike 
this  balance,  or  to  determine  this  preponder- 
ance? In  order  to  do  this,  or  even  to  attempt 
it  with  any  reasonable  approach  to  definiteness, 
we  must  settle  upon  some  sort  of  definition  of 
the  terms  we  have  been  using. 

Before  we  go  on  to  this,  however,  it  is  worth 
while  to  point  out  that  even  without  such  defini- 
tion it  may  be  possible  to  speak  of  a  rise  or  fall 
in  the  price-level — a  fall  or  rise  in  the  value  of  the 
dollar — as  having  actually  taken  place,  although 
some  prices  may  have  fallen;  and  even  to  have  a 
fair  notion  of  the  degree  in  which  they  have 


40  Cost  of  Living 

risen,  even  though,  besides  some  having  fallen, 
those  that  have  risen  have  risen  in  very  different 
degrees.  If  it  is  evident  that  falling  prices  have 
been  extremely  exceptional,  and  that  throughout 
a  large  range  of  the  things  most  important  to 
the  great  body  of  the  population  prices  have 
risen  by  from  25  to  75  per  cent.,  no  refined  exam- 
ination of  just  what  one  ought  to  mean  by  **the 
price-level,"  or  by  *'the  value  of  the  dollar," 
is  necessary  in  order  to  justify  the  assertion  that 
there  has  been  a  great  rise  in  the  one,  a  great 
fall  in  the  other.  And  it  is  for  this  reason  that 
v^e  need  not  hesitate  to  make  the  kind  of  asser- 
tions that  have  been  made  in  the  preceding 
chapters  concerning  the  present  high-price 
period. 

But  now  for  the  definition.  Of  course,  what 
one  has  in  mind  in  speaking  of  "the  price-level" 
or  "the  value  of  the  dollar"  is  the  average  of 
prices,  the  average  purchasing  power  of  the 
dollar.  But  it  is  far  from  easy  to  say  what  we 
mean  by  this  "average" — quite  apart  from  any 
statistical  difficulties  in  actually  determining  it. 
Even  if  there  were  only  a  limited  and  definite 
number  of  things  whose  prices  had  to  be  taken 
into  account,  the  proper  meaning  of  the  "aver- 
age" of  these  prices  would  be  a  very  open  ques- 


Value  of  the  Dollar  41 

tion.  If  the  price  of  a  yard  of  silk  fell  from  $1 
to  50  cents,  and  at  the  same  time  the  price  of 
five  pounds  of  beef  rose  from  $1  to  ^1.50,  it 
might  in  some  sense  be  said  that  the  average 
price  of  beef  and  silk  had  remained  stationary; 
for  you  could  continue  to  buy  a  yard  of  silk  and 
five  pounds  of  beef  for  $2  just  as  before.  And 
so,  if  you  set  down  a  list  of  twenty  things,  noting 
the  quantity  of  each  that  could  be  bought  for  $1 
in  1900,  say,  and  then  set  down  the  price  that 
had  to  be  paid  for  these  same  things  in  1910,  you 
could  in  some  sense  declare  what  had  happened 
to  the  average  of  prices,  or  the  average  purchas- 
ing power  of  the  dollar.  If  the  sum  of  the 
amounts  required  to  purchase  the  twenty  things 
in  1910  was  $25,  one  might  say  that  on  the 
average  it  took  $1.25  in  1910  to  buy  what  ^i  had 
bought  in  1900;  and  accordingly  that  on  the 
average  prices  had  risen  25  per  cent.,  or  the 
value  of  the  dollar  fallen  20  per  cent. 

But  obviously  this  kind  of  average  would 
have  no  proper  relation  to  the  realities  of  life 
if  the  twenty  things  were  set  down  at  random, 
without  consideration  of  their  relative  impor- 
tance and  of  their  representative  character.  To 
go  back  to  the  illustration  in  which  only  two 
articles  occurred,  it  would  be  manifestly  absurd 


42  Cost  of  Living 

to  regard  a  fall  of  50  cents  in  silk  as  really  bal- 
ancing a  rise  of  50  cents  in  beef.  In  order  to  get 
an  average  which  shall  be  really  significant, 
we  must  first  select,  out  of  the  endless  multitude 
of  things  that  are  bought  and  sold,  a  set  that  is 
fairly  representative  of  the  great  bulk  of  human 
demands;  and  then  we  must  endeavor  to  attach 
to  each  a  weight  that  corresponds  to  the  magni- 
tude of  the  part  that  it  plays  in  the  general 
expenditure.  This  may  be  attempted  in  various 
ways;  perhaps  the  simplest  is  to  take  (at  the 
starting-point)  not  in  each  case  the  quantity 
that  can  be  bought  for  a  dollar,  but  in  eacTi 
case  a  quantity  proportional'to  the  aggregate 
amount  actually  expended  upon  each  by  the 
people  as  a  whole.  Thus  (to  go  back  for  a 
moment  again  to  the  case  of  only  two  articles) 
if  the  annual  expenditure  of  the  country  for  beef 
is  twenty  times  the  annual  expenditure  for  silk, 
we  should  set  down  the  amount  of  beef  (say  100 
pounds)  that  can  be  bought  for  ^20  and  the 
amount  of  silk  (say  one  yard)  that  can  be  bought 
for  ^i ;  then  if  the  price  of  a  yard  of  silk  fell  from 
$1  to  50  cents,  this  fall  would  be  counterbalanced 
by  the  rise  of  100  pounds  of  beef  to  ^20.50;  that 
is,  by  a  rise  of  a  mere  half  cent  a  pound  in  beef, 
instead  of  a  rise  of  10  cents  a  pound,  as  was 


\  Value  of  the  Dollar  43 

the  case  when  we  took  no  notice  of  the  diflFerence 
in  importance  between  ^i  spent  on  beef  and  $1 
spent  on  silk.  And  in  like  manner,  in  a  list  of 
twenty  or  fifty  or  a  hundred  things  we  take 
such  a  quantity  of  each  as  corresponds  (roughly, 
of  course)  to  the  amount  of  that  thing  actually 
demanded  by  the  community;  we  set  down  the 
price  that  has  to  be  paid  for  that  quantity  at 
the  date  chosen  for  a  starting-point;  then  we 
set  down  the  price  that  has  to  be  paid  for  the 
same  quantity  of  each  at  any  other  date;  and 
we  take  the  sum  of  the  prices  at  the  first  date 
and  at  the  second.  If  that  sum  is  ^1,000,  say, 
at  the  first  date  and  ^1,250  at  the  second,  then 
(assuming  that  the  things  chosen  are  sufficiently 
representative)  we  are  fairly  justified  in  saying 
that,  on  the  average,  it  took  $1.25  at  the  second 
date  to  buy  what  $1  bought  at  the  first  date; 
and  therefore  that  the  price-level  (the  average 
of  prices)  was  higher  by  25  per  cent,  at  the 
second  date  than  at  the  first,  or  that  the  value 
of  the  dollar  (the  average  purchasing  power 
of  the  dollar)  was  lower  by  20  per  cent,  at  the 
second  date  than  at  the  first. 

We  shall  look  into  this  matter  more  closely 
in  a  subsequent  chapter;  here  it  will  suffice  to 
say  that  such  terms  as  **the  level  of  prices," 


44  Cost  of  Living 

"the  purchasing  power  (or  value)  of  the  dollar/* 
and  the  like,  must  be  understood  as  having 
reference  to  averages  based  upon  a  combination 
of  the  prices  of  many  things;  these  things  being 
selected  with  a  view  to  their  being,  taken  alto- 
gether, fairly  representative  of  all  the  things 
upon  which  money  is  expended;  and  such  weight 
being  assigned  to  each  thing  entering  mto  the 
list  as  would  correspond  to  the  proportion  which 
the  expenditure  for  that  thing,  or  for  the  group 
of  things  which  it  represents,  bears  to  the  entire 
expenditure  of  the  people. 

An  average  of  prices  so  obtained  may  fitly  be 
regarded  as  representing  the  general  price-level 
and  as  measuring  the  value  of  the  dollar.  But 
it  should  be  noted  at  once  that  this  measure- 
ment, though  desirable  and  useful,  is  by  no 
means  perfect.  It  gives  us  a  far  better  idea 
of  what  has  taken  place  than  would  a  mere 
guess,  and  indeed  for  many  purposes  it  is  all 
that  need  be  desired.  But  we  must  not  forget 
that  there  is  something  arbitrary  in  the  process 
of  selection  and  in  the  process  of  weighting,  in 
both  of  which  much  must  be  left  to  the  judg- 
ment or  instinct  of  the  person  performing  the 
process.  Nor  is  this  all.  However  perfectly 
the  process  might  be  performed,  it  would  still 


Value  of  the  Dollar  45 

not  bring  about  a  result  that  represented  the 
true  changes  in  the  value  of  the  dollar  as  these 
affect   the   various   classes   of  the   community. 
Taking  the  expenditures  of  the  community  as  a 
whole,  a  certain  proportion  is  devoted  to  what 
are  commonly  spoken  of  as  necessaries  of  life, 
another  to  comforts,  another  to  luxuries.     But 
among  the  poor  practically  the  whole  expendi- 
ture goes  to  necessaries;  among  people  in  modest 
circumstances  comforts  enter  to  a  large  extent 
and  luxuries  very  little;  while  among  the  rich 
luxuries  perhaps  absorb  far  more  than  comforts 
and  necessaries  combined.     Accordingly,  unless 
the    price-level  changes    in    approximately   the 
same  degree  in  these  three  groups  of  objects  of 
expenditure,  it  may  be  that  the  movements  of 
that  level,  if  reckoned  exclusively  on  the  ex- 
penditure of  the  poor,  or  the  moderately  cir- 
cumstanced, or  the  rich,  might  be  very  different 
from  what  they  are  when  based  on  the  entire 
expenditure  of  the  community.     So  far,  then, 
as  any  one  of  these  classes  of  the  population  is 
concerned,  it  may  be  that  the  change  in  the 
value  of  the  dollar  is  quite  inaccurately  reflected 
in  the  change  in  "the  general  level  of  prices." 

Another  question  might  be  asked,  affecting 
in  quite  a  fundamental  way  the  conclusiveness 


46  Cost  of  Living 

of  the  price-level  as  a  measure  of  the  true  value 
of  the  dollar;  namely,  the  question  whether  labor 
itself — labor  as  such,  and  not  as  embodied  in 
commodities — ought  to  be  included  in  the  list 
of  things  whose  prices  enter  into  the  formation 
of  our  average.  But  we  have  to  dismiss  this 
very  important  point  with  a  bare  mention. 

Before  leaving  this  subject  of  the  "value  of 
the  dollar,"  it  seems  worth  while  to  make  a 
brief  reference  to  an  episode  in  our  political 
history  which  is  not  without  instructiveness 
in  this  connection.  All  that  we  have  been 
saying  is  mere  commonsense;  there  is  nothing 
mysterious  or  technical  about  it.  Indeed,  the 
objection  which  might  most  naturally  be  made 
to  it  is  that  it  is  too  obvious  to  need  setting 
forth  at  all.  That  is  the  criticism  that  is  often 
made  in  regard  to  almost  every  one  of  the  elemen- 
tary truths  of  political  economy;  no  sooner  does  a 
person  get  an  understanding  of  what  it  is  than  he 
is  tempted  to  dismiss  it  as  a  mere  truism.  As 
regards  these  things  about  "the  value  of  the 
dollar,"  obvious  and  mere  commonsense  though 
they  are,  we  have  only  to  recall  the  days  of  the 
crucial  Presidential  campaign  of  1896  to  see  the 
importance  of  having  them  explicitly  set  forth 
and  firmly  apprehended.     The  silver  side  and 


Value  of  the  Dollar  47 

the  gold  side  in  that  contest,  as  represented  by 
most  of  their  spokesmen  on  the  stump  and  in 
the  press,  vied  with  each  other  in  the  putting 
forward  of  views  which  the  most  cursory  ex- 
amination, from  the  standpoint  of  simple 
economic  principles,  would  have  shown  to  be 
absurd.  But  perhaps  the  palm,  in  this  com- 
petition of  absurdity,  is  to  be  awarded  to  the 
claim  so  often  and  so  solemnly  made  by  cham- 
pions of  the  gold  side,  that  the  value  of  gold 
never  changes.  What  they  had  in  the  back 
of  their  heads  may  have  been  the  fact  that  a 
given  weight  of  unminted  gold  can  always  be 
exchanged  for  the  same  weight  of  minted  dol- 
lars, and  vice  versa;  but  what  they  actually 
asserted  and  insisted  on — and  what  thousands 
of  them  believed — was  that  while  the  silver 
dollar  was  subject  to  great  changes  of  value, 
the  value  of  the  gold  dollar  was  fixed  and  in- 
variable, like  the  length  of  the  yardstick.  No 
person  who  had  ever  given  any  thought  to  the 
true  meaning  of  "the  value  of  the  dollar"  could 
possibly  have  been  guilty  of  so  childish  an 
error. 


CHAPTER  V 

THE  QUANTITY  THEORY  OF  MONEY 

All  that  has  thus  far  been  said  has  reference  to 
the  nature  of  the  phenomenon  of  high  prices — 
or  the  "high  cost  of  Hving" — not  at  all  to  the 
cause  of  the  phenomenon.  As  regards  its 
cause,  the  first  question  that  necessarily  con- 
fronts us  is  as  to  whether  the  cause  is  to  be 
found  in  changes  relating  to  the  things  that  are 
bought  with  money  or  in  changes  relating  to 
money  itself.  If  a  rise  or  fall  of  price  takes 
place  with  respect  to  a  single  commodity,  or 
with  respect  to  a  comparatively  small  number 
of  commodities  or  groups  of  commodities,  while 
the  great  mass  of  prices  are  subject  to  no 
marked  disturbance,  evidently  the  cause  of  the 
particular  change  in  prices  that  has  taken 
place  is  to  be  sought  in  circumstances  specially 
affecting  the  commodity  or  commodities  in 
question.  Thus  a  big  rise  in  the  price  of  cop- 
per, coincident  with  the  enormous  extension 
of  the  use  of  copper  through  the  development  of 

48 


The  Quantity  Theory  of  Money         49 

the  telephone  and  other  appUcations  of  electri- 
city, would  at  once  be  accounted  for  by  this 
increase  of  demand  unaccompanied  by  cor- 
responding enlargement  of  the  sources  of  supply. 
In  like  manner  if  great  areas  of  grazing  lands 
ceased  to  be  available  for  the  raising  of  cattle, 
while  at  the  same  time  the  population  to  be 
fed  was  increasing,  there  would  be  no  difficulty 
in  understanding  why  beef  had  risen  in  price. 
But  the  phenomenon  which  has  been  witnessed 
in  the  last  eighteen  years  or  thereabouts  is  that 
of  a  general  rise  in  prices — a  rise  so  general  that 
even  the  things  which  have  not  risen  in  price 
can  hardly  be  pomted  to  as  real  exceptions  to 
the  rule;  for  it  must  be  remembered  that  there 
are  many  things  whose  price,  under  normal 
conditions,  would  have  been  falling,  and  falling 
considerably,  as  a  result  of  improved  processes 
and  more  efficient  organization  of  production. 

Now  when  all  prices  steadily  rise  throughout 
a  considerable  period,  it  is  evident  that  a  general 
cause  is  at  work,  and  that  this  cause  has  to  do 
not  with  commodities  but  with  money.  To  be 
strictly  accurate,  we  should  attach  one  quali- 
fication to  this  assertion.  If  through  some 
change  in  natural  conditions,  or  in  human 
character  or  institutions,  the  general  produc- 


50  Cost  of  Living 

tivity  of  mankind  were  diminished  in  all  direc- 
tions— if  the  total  output  per  capita  of  all  sorts 
of  things  were  less  than  it  has  been — then  it 
might  be  said  that  the  fact  that  it  took  more 
dollars  to  pay  for  the  same  quantity  of  things 
in  general  was  due  to  a  change  aflPecting  the 
production  of  the  things  that  are  bought  for 
money,  and  not  to  a  change  affecting  money 
itself.  But  obviously  this  hypothetical  case 
is  so  widely  at  variance  with  the  facts  of  the 
present  age  that  we  may  dismiss  it  without 
further  consideration.  A  general  rise  of  prices 
in  our  time  can  only  mean  a  change  of  some  sort 
or  other  in  the  matter  of  money.  For  any 
intelligent  understanding,  therefore,  of  the 
phenomenon  of  high  prices  it  is  indispensable  to 
have  some  grasp  of  the  fundamental  principles 
that  govern  the  value  of  money. 

Into  the  exposition  of  these  principles  we 
cannot  enter  in  detail;  but  it  is  possible  in  a 
brief  compass  to  give  the  essentials  of  the  matter. 
And  while  there  are  many  complexities  in  the 
subject  which  we  must  (in  however  brief  and 
rudimentary  form)  take  into  account,  there 
will  be  no  harm  in  ignoring  one  of  them;  namely, 
the  existence  in  the  world  of  two  fundamental 
money  metals,  gold  and  silver.     We  shall  dis- 


The  Quantity  Theory  of  Money         51 

cuss  the  subject  as  though  the  gold  standard 
were  universal;  though  perhaps  at  another  point 
we  may  take  into  account  the  part  actually 
played  by  silver. 

Now  suppose,  to  begin  with,  that  all  the 
money  of  a  country  consists  of  gold  coin.  At 
any  given  time,  in  that  country,  there  exists  a 
definite  condition  of  things  as  to  the  extent  and 
kind  of  its  industry  and  commerce,  the  habits 
of  its  people  in  the  transaction  of  business,  the 
extent  to  which  credit  is  resorted  to,  the  ratio 
of  the  amount  of  money  which  people  feel  it 
necessary  to  have  immediately  accessible  as 
compared  with  the  whole  amount  of  their  pos- 
sessions or  the  magnitude  of  their  business — in  a 
word,  there  exists  a  certain  condition  as  to  all 
those  institutions  and  habits  which  determine 
what  is  called  the  rapidity  of  circulation  of 
money,  and  the  proportion  of  the  amount  of 
money  that  lies  idle  to  the  amount  that  circu- 
lates. With  these  characteristics  of  the  nation 
given,  the  business  of  the  nation  can  be  carried 
on  at  a  given  scale  of  prices  with  a  certain  ag- 
gregate amount  of  money;  and  if  that  scale  of 
prices  be  increased  or  diminished,  the  amount  of 
money  required  to  do  that  business  will  be 
greater  or  less  in  the  same  proportion.     Let  us 


52  Cost  of  Living 

suppose,  then,  a  given  scale  of  prices  to  exist, 
and  the  amount  of  money  in  the  country  to 
be  in  correspondence  with  it;  and  then  let  us 
suppose  an  increase  of  20  per  cent,  in  the 
amount  of  money.  It  is  evident  that  on  the  old 
scale  of  prices  some  of  the  money  will  not  be 
required  either  for  the  transaction  of  business 
or  for  the  keeping  up  of  the  usual  reserves,* 
whether  in  banks  or  strong  boxes  or  lying  loose 
in  people's  pockets;  this  surplus  idle  money  will 
seek  a  use.  And  it  can  find  no  use,  except  in  the 
purchase  of  things  of  one  kind  or  another.  The 
pressure  of  this  new  supply  of  money  seeking  a 
use  will  raise  prices — possibly  in  a  very  irregular 
manner,  but  still  will  raise  them.  This  proc- 
ess will  continue  until,  some  way  or  other,  the 
level  of  prices,  taken  as  a  whole,  will  be  raised 
by  an  amount  sufficient  to  make  use  for  all  the 
money  that  has  now  become  current.  And, 
however  irregular  the  process,  it  may  be  said 
in  a  general  way  that  when  equilibrium  has 
been  reestablished  the  relative  value  of  any  two 
things  (other  than  money)  will  be  the  same  as 
before.  That  is,  the  relative  prices  of  all  commod- 
ities and  services  will  be  what  they  were  before; 
but  the  absolute  prices  will  have  been  raised  by 
20  per  cent.      Of  course  a   like   consideration 


The  Quantity  Theory  of  Money         53 

applies  to  the  case  of  a  diminution  of  the  supply 
of  money.  This,  then,  is  (in  the  simplest  case) 
the  quantity  theory  of  money:  that,  given  the 
nature  and  extent  of  a  country's  industries  and 
the  business  methods  and  habits  of  its  people,  the 
value  of  money  in  that  country  varies  inversely 
as  its  quantity — an  increase  or  diminution  of 
the  quantity  of  money  in  any  proportion — in- 
volves a  rise  or  fall  of  prices  in  the  same  pro- 
portion. 

Now,  as  a  matter  of  fact,  gold  coins  are  far 
from  being  the  only  thing  that  serves  as  money 
in  gold-standard  countries,  and  we  must  con- 
sider the  effect  of  the  use  of  substitutes  for  it. 
Of  these  there  is  a  great  variety;  but  in  the  first 
place  it  is  well  to  mention  one  kind  of  substitute 
for  gold  coins  which  belongs  in  a  class  by  itself, 
and  should  not  properly  be  thought  of  as  a 
substitute  at  all.  I  refer  to  gold  certificates. 
When  the  Government  prints  a  certificate  de- 
claring that  it  has  in  its  possession  twenty  dol- 
lars in  gold,  which  will  be  delivered  to  the  holder 
of  the  certificate  on  demand,  the  man  who  has 
the  certificate  virtually  has  the  gold;  and,  what 
is  quite  as  much  to  the  purpose,  the  Government 
has  not.  Apart  from  the  supposition,  which  is 
of  course  absolutely  out  of  the  question,  that 


54  Cost  of  Living 

the  Government  will  turn  out  a  common  thief, 
the  certificate,  to  all  intents  and  purposes,  is 
the  gold;  and  it  is  the  gold  itself  that  changes 
hands  every  time  the  certificate  changes  hands. 
And  the  same  thing  is  essentially  true  in  the 
case  of  bank  notes  which — like  all  those  of  the 
Bank  of  England  issued  above  a  certain  fixed 
limit — can  be  issued  only  against  a  gold  deposit 
of  the  same  amount. 

Notes  issued  by  the  Government  and  re- 
deemable in  gold,  but  not  necessarily  represent- 
ing an  equal  amount  of  actual  gold  held  by  the 
Government  for  their  redemption,  are  substi- 
tutes for  gold  in  a  real  sense,  which  gold  certifi- 
cates are  not.  The  same  thing  is  true  of  bank 
notes  redeemable  directly  or  indirectly  in  gold, 
but  not  having  behind  them  an  equal  amount 
of  gold  actually  reserved  for  the  purpose.  So 
long  as  notes  of  either  of  these  kinds  are  not 
issued  in  excessive  quantity,  and  pass  current 
at  their  face  value,  the  surplus  of  their  aggregate 
amount  over  the  amount  of  gold  held  in  reserve 
for  their  redemption  acts  to  all  intents  and 
purposes  as  would  an  addition  of  the  same  size 
to  the  stock  of  gold  coins. 

Next  after  these  substitutes  for  gold,  which 
are  actually  exchangeable  for  it  at  the  desire  of 


The  Quantity  Theory  of  Money         55 

the  holder,  may  be  considered  substitutes  for 
gold  coins  which  circulate  alongside  of  these, 
though  they  neither  have  the  same  intrinsic 
value  nor  are  exchangeable  for  them  on  demand. 
The  silver  coins  in  most  gold-standard  countries 
belong  to  this  category;  their  intrinsic  value  at 
the  market  rates  for  silver  is  far  less  than  the 
number  of  gold  dollars  represented  by  them  on 
their  face,  and  they  circulate  as  they  do  because 
for  certain  purposes  they  must  be  accepted  by 
law  at  their  face  value.  If  the  amount  of  them 
in  circulation  were  so  great  as  to  cause  people 
to  entertain  a  doubt  as  to  whether  they  would 
continue  to  pass  from  hand  to  hand  at  their 
face  value,  they  would  at  once  begin  to  depreci- 
ate; but  so  long  as  this  is  not  the  case,  they  act 
as  an  addition  to  the  supply  of  money  just  as 
though — or  just  about  as  though — they  were 
so  much  money  in  the  shape  of  gold  coins.  And 
even  irredeemable  Government  notes — bits  of 
paper  with  no  intrinsic  value  at  all — may  play 
this  part,  provided  they  are  not  issued  in  excess. 
It  is  a  bad  plan,  and  a  dangerous  one;  but  if  the 
Government  issues  bits  of  paper  of  this  kind 
and  accepts  them  itself  in  payment  of  taxes,  or 
adopts  other  measures  tending  to  cause  them  to 
pass  as  money  for  certain  purposes,  it  may  sue- 


56  Cost  of  Living 

ceed  in  maintaining  the  circulation  of  a  certain 
limited  amount  of  this  sort  of  substitutes  for 
money.  So  long  as  they  did  so  they  would  con- 
stitute a  virtual  addition  to  the  stock  of  coined 
gold. 

Besides  these  tangible  substitutes  for  gold, 
there  is  a  great  system  of  intangible  substitutes 
— the  vast  credit  system  of  modern  times. 
Just  in  so  far  as  business  transactions  are  settled 
by  the  mere  entering  of  certain  figures  on  the 
debit  or  credit  side  of  a  banker's  books;  just  in 
so  far  as,  instead  of  handing  over  a  bag  of  gold 
in  payment  of  a  purchase  or  a  debt,  A  writes 
an  order  on  his  banker  which  B  deposits  with 
his  banker,  the  result  being  the  entering  of  a 
certain  amount  to  the  debit  side  of  A's  account 
at  his  bank  and  to  the  credit  side  of  B's  at  his; 
just  in  so  far  as  the  banks  themselves,  instead  of 
settling  their  accounts,  each  one  directly  with 
each  other  one  by  the  transfer  of  cash,  only 
settle  their  aggregate  net  balances  through  the 
clearing  house,  which  requires  incomparably 
less  cash  to  be  actually  handled;  just  in  so  far 
as  all  this  highly  developed  mechanism  of  credit 
and  finance  enables  a  small  amount  of  gold  to 
effect  exchanges  which  would  otherwise  require 
a  vast  amount,  the  need  of  actual  gold  for  the 


The  Quantity  Theory  of  Money         57 

transaction  of  a  given  volume  of  business  upon 
a  given  scale  of  prices  is  enormously  reduced. 
It  is  none  the  less  true  that,  given  the  state  of 
development  of  this  mechanism,  a  country  will 
require,  upon  a  given  scale  of  prices,  a  definite 
quantity  of  basic  money  with  which  to  transact 
its  business.  The  application  of  the  quantity 
theory  is  not  essentially  altered;  only,  of  course, 
the  quantity  of  money  corresponding  to  a  given 
scale  of  prices  is  vastly  less  than  it  would  be  if 
this  machinery  of  credit  did  not  exist  or  were 
less  highly  developed. 

When  we  say  that  the  application  of  the  quan- 
tity theory  remains  essentially  unaltered  by  the 
fact  that  there  exists  this  vast  financial  mechan- 
ism, by  means  of  which  far  the  largest  part  of  all 
business  transactions  is  effected  without  the 
direct  use  of  tangible  money,  we  mean  that,  so 
long  as  the  nature  and  potency  of  this  credit 
mechanism  remain  unchanged,  an  increase  or 
diminution  in  the  quantity  of  ordinary  money 
(basic  money  and  those  substitutes  which  pass 
current  alongside  it)  will  involve  a  rise  or  fall  of 
prices  in  the  same  proportion.  If  the  quantity 
of  money  is  increased  or  diminished  by  20 
per  cent,  the  level  of  prices  will  rise  or  fall  by 
20  per  cent.     This   proposition    has  been  the 


58  Cost  of  Living 

subject  of  a  great  deal  of  controversy,  and  it  is 
quite  impossible  here  to  discuss  it,  except  in  the 
briefest  way.  But  we  must  attempt  to  get 
some  slight  idea  of  the  reason  for  asserting  it 
and  of  the  nature  of  some  of  the  errors  com- 
mitted by  those  who  dispute  it. 

The  fundamental  reason  for  asserting  that 
prices  will  be  proportional  to  the  quantity  of 
basic  money,  even  though  alongside  that  basic 
money  there  exists  virtually  a  much  larger 
volume  of  this  other  medium  of  exchange — that 
of  the  modern  credit  system — may  perhaps  be 
best  apprehended  by  stating  first  the  reason  most 
commonly  given  for  denying  it.  If,  it  is  said, 
out  of  twenty  billions  of  dollars  of  business 
transactions  only  one  billion  is  settled  by  the 
use  of  gold,  and  the  other  nineteen  billions  by 
mere  entries  on  bankers'  books,  the  doubling 
of  the  stock  of  gold  would  have  only  so  much 
effect  upon  prices  as  might  be  expected  to  result 
from  the  increase  of  the  whole  medium  of  ex- 
change in  the  ratio  of  21  to  20.  That  part  of 
the  medium,  these  objectors  say,  which  consists 
in  gold  has,  indeed,  been  doubled;  but  the  whole 
has  been  affected  very  little.  But  the  augmen- 
tation of  the  circulating  medium  through  the 
mechanism    of   credit    and    banking    is   not   a 


The  Quantity  Theory  of  Money  59 

matter,  arithmetically  speaking,  o^  addition y  but 
of  multiplication.  It  is  not  as  though  nineteen 
billions  in  the  shape  of  credit  money  were  added 
to  whatever  sum  of  gold  happened  to  be  on  hand; 
but  it  is  that  on  top  of  every  dollar  of  gold  is 
built,  some  way  or  other,  a  credit  or  banking 
structure  which  plays  the  part  of  nineteen  dollars 
of  gold.  If  for  every  dollar  of  gold  that  there 
was  before  there  are  now  two  dollars,  there  is  no 
reason  in  the  world  why  the  second  dollar  should 
not  serve  in  exactly  the  same  way  as  the  basis 
of  its  nineteen  dollars  of  virtual  money  in  the 
credit  and  banking  system.  This  being  so,  an 
increase  of  the  basic  money  by  any  percentage 
would  mean  an  increase  of  the  credit  medium 
by  the  same  percentage;  and  accordingly  a  rise 
of  prices  by  the  same  percentage,  for  the  reason 
assigned  in  the  simple  case  first  considered: 
namely,  that  only  through  such  increase  of 
prices  would  use  be  found  for  the  entire  available 
supply  of  money — the  tangible  money  that  cir- 
culates from  hand  to  hand  and  the  banking-and- 
credit  medium  which  serves  as  money  in  most 
business  transactions. 

Another  class  of  objections  comes  under  the 
head  of  ''not  seeing  the  woods  for  the  trees." 
Of  this  many  examples  might  be  cited,  but  one 


6o  Cost  of  Living 

must  suffice.  In  explaining  how  that  adjust- 
ment of  the  credit  medium  takes  place  which 
the  quantity  theory  requires,  writers  point  out 
that  an  influx  of  gold  has  a  tendency  to  cause 
bankers  to  increase  their  loans,  the  means 
adopted  for  this  purpose  being  a  lowering  of  the 
rate  of  discount.  Now,  then,  say  some  of  the 
objectors,  we  do  not  find,  in  the  statistics  of  the 
discount  rate  during  a  period  of  increasing  gold 
supply  and  rising  prices,  any  lower  average  rate 
than  usual.  But,  granting  that  this  is  so,  it 
by  no  means  disproves  the  assertion  of  the 
quantity-theory  men.  For,  although  a  lowering 
of  the  discount  rate  may  be  a  first  step  in  the 
process — a  step  necessary  to  bring  about  an 
expansion  of  credits  corresponding  to  the  influx 
of  gold — yet  when  this  has  had  its  eff'ect  in  the 
raising  of  prices  a  new  force  is  put  in  motion 
which  tends  to  put  the  discount  rate  up  again, 
and  perhaps  to  a  higher  point  than  before.  For 
rising  prices  mean  exceptional  profits  for  busi- 
ness enterprise;  and  exceptional  profits  mean 
an  eager  demand  for  money  on  the  part  of 
business  men,  which  of  course  gives  the  banks 
the  chance  to  lend  their  money — their  credit  J 
money — at  higher  rates.  This  see-saw  opera-j 
tion,  with  the  downward  turn  serving  to  expand 


The  Quantity  Theory  of  Money         6i 

the  credit  medium,  while  the  upward  turn  does 
not  contract  it,  is  all  that  is  necessary  to 
satisfy  the  quantity-theory  view;  and  there  is 
no  reason  in  the  world  to  suppose  that  the 
net  result  of  the  see-saw  would  be  a  lowering, 
any  more  than  a  raising,  of  the  average  rate  of 
discount  for  the  period. 

We  cannot  go  further  into  the  argument. 
But  the  opponents  of  the  quantity  theory,  after 
they  have  done  their  best  to  show  that  it  is 
false,  have  another  string  to  their  bow.  They 
go  on  to  say  that  when  the  theory  is  stated  so 
carefully  and  accurately  that  it  must  be  admit- 
ted to  be  true,  it  becomes  a  mere  truism — a 
self-evident  truth,  having  no  practical  signifi- 
cance or  value.  For,  say  they,  even  according 
to  the  theory  itself,  prices  will  rise  or  fall  with 
the  quantity  of  gold,  only  under  the  condition 
that  ''other  things  remain  equal";  and  other 
things  never  do  remain  equal.  The  volume  of 
business  transactions  is  constantly  changing; 
the  banking  and  credit  system  is  constantly 
developing;  and  the  habits  of  people  in  regard 
to  the  use  of  banking  facilities  do  not  remain 
the  same  from  year  to  year.  This  kind  of  ob- 
jection would  reduce  to  a  nullity  not  only  the 
quantity  theory  of  money,  but  almost  every 


62  Cost  of  Living 

fundamental  principle  of  political  economy. 
But  the  objection  is  thoroughly  wrong-headed. 
The  political  economist  is  not  a  fortune-teller 
who  prophesies  what  is  going  to  happen  at  such  a 
time  in  the  future;  his  business  is  to  endeavor 
to  disentangle  the  various  elements  that  enter 
into  the  economic  situation  and  point  out  the 
influence  which  each  of  them  is  calculated  to 
exercise  upon  it.  It  often  happens  that  when 
he  has  done  so,  after  having  first  had  to  over- 
come a  vast  amount  of  inertia  to  get  his  view 
accepted,  he  is  met  with  the  complacent  declara- 
tion that  any  child  could  see  that.  And  it 
almost  seems  as  though  any  child  could;  only 
some  way  or  other  he  doesn't. 

In  this  particular  instance  it  is  easy  to  show 
that,  truism  or  no  truism,  the  quantity  theory 
of  money  is  not  a  mere  empty  formula  devoid 
of  practical  importance.  For  we  have  before 
us  the  crude  fact  that  those  who  accept  it — 
and  here  it  may  be  mentioned  that  these  com- 
prise substantially  the  whole  body  of  scientific 
economists — declare  that  the  enormous  increase 
of  the  gold  supply  that  has  taken  place  in  the 
last  twenty  years  through  the  exploitation  of 
the  Klondike  and  South  Africa,  and  the  inven- 
tion of  new   metallurgical  processes,  has  exer- 


The  Quantity  Theory  of  Money         63 

cised  a  most  powerful  influence  in  the  raising  of 
prices;  while  those  who  reject  the  theory  deny 
that  this  influence  has  been  of  any  great  con- 
sequence. A  diff^erence  of  opinion  which  results 
in  assigning  to  one  of  the  most  striking  economic 
developments  of  our  time  on  the  one  hand  a 
leading  place,  on  the  other  hand  almost  no 
place  at  all,  in  accounting  for  the  most  perplex- 
ing social  and  industrial  phenomenon  of  the 
day — the  "high  cost  of  living" — is  surely  a  real 
and  substantial  difference,  and  not  a  mere 
quarrel  about  words. 

Turning  now  from  the  theory  itself,  let  us  take 
a  glance  at  the  kind  of  thing  that  actually  hap- 
pens in  the  world;  in  other  words,  at  what  really 
takes  place  in  consequence  of  the  fact  that 
"other  things"  do  not  "remain  equal."  In  an 
age  of  economic  progress  and  expansion  there 
are  three  great  factors  that  come  into  play. 
In  the  first  place,  the  volume  of  business  trans- 
actions is  (speaking  generally)  continually  on 
the  increase,  owing  to  the  growth  of  production 
and  of  trade;  and  the  greater  the  volume  of 
business  to  be  transacted  with  a  given  amount 
of  money,  under  given  conditions,  the  greater 
will  be  the  value  of  money — in  other  words,  the 
lower   the    price-level.     But   two   other   things 


64  Cost  of  Living 

are  going  on  all  the  time.  There  is  an  addition 
every  year  to  the  total  supply  of  basic  money — 
say  gold — from  the  output  of  the  mines.  And 
there  is  a  continual  development  of  the  scope 
and  efficacy  of  the  banking  and  credit  system 
(and  of  other  adjuncts  to  the  efficiency  of  busi- 
ness methods)  in  consequence  of  which  a  smaller 
quantity  of  basic  money  is  necessary  for  the 
transaction  of  a  given  volume  of  business  at  a 
given  scale  of  prices.  Thus,  simultaneously 
with  the  increasing  volume  of  business,  which 
tends  to  lower  prices,  we  have  the  annual  addi- 
tions to  the  quantity  of  basic  money  and  the 
steady  increase  in  the  effectiveness  of  the  mech- 
anism of  credit  and  exchange,  both  of  which 
tend  to  raise  prices.  Which  of  these  two  op- 
posing tendencies  will  prevail  over  the  other 
can  never  be  foretold  for  any  length  of  time. 
But  when,  as  a  matter  of  fact,  a  great  rise  of 
general  prices  has  taken  place,  covering  a  con- 
siderable period  like  that  of  the  present  era  of 
high  prices,  it  is  quite  certain  that  the  growth 
in  the  volume  of  business,  enormous  though  it 
has  been,  has  been  overmatched  by  the  other 
two  factors  combined.  There  is  room  for  dis- 
pute as  to  how  much  influence  is  to  be  ascribed 
to  the  stupendous  increase  of  the  world's  stock 


The  Quantity  Theory  of  Money         65 

of  gold  in  the  last  eighteen  years,  and  how  much 
to  the  development  of  the  machinery  of  bank- 
ing, credit,  and  exchange;  but  there  is  no  room 
for  doubt  that  the  two  together  account  for  the 
phenomenon  of  the  high  prices,  and  that  each 
has  been  a  most  powerful  factor  in  its  produc- 
tion. 

Before  leaving  this  subject  it  will  be  well  to 
say  a  word  about  the  relation  of  the  price-level 
and  the  supply  of  gold  in  one  country  to  the 
price-level  and  the  supply  of  gold  in  the  world 
at  large.*  All  the  commercial  countries  of  the 
world  are  in  touch  with  one  another,  and  prices 
in  one  country  are  not  independent  of  prices 
in  others.  Whether  trade  be  free  or  not,  and 
whether  the  expense  of  transportation  be  light 
or  heavy,  the  level  of  prices  of  those  commodities 
which  enter  into  foreign  trade  has  a  fixed  cor- 
respondence in  all  the  great  trading  countries. 
In  those  cases  in  which  trade  is  free,  and  as  to 
those  commodities  for  which,  besides,  trans- 
portation expenses  are  so  slight  as  to  be  negli- 
gible,  it    may   be   said   that   the    price   is    the 


*We  are  still  treating  the  matter  as  though  all  countries  were 
upon  the  gold  standard.  This  is  done  for  the  sake  of  simplicity; 
the  modification  that  would  be  required  if  the  existence  of  silver- 
standard  countries,  trading  with  gold-standard  countries,  were 
taken  into  account,  would  in  no  way  affect  the  character  of  the 
results. 


6(i  Cost  of  Living 

same  in  the  various  countries  engaged  in 
the  trade;  for  any  material  difference  of  price 
would  cause  an  increase  of  exportation  to  the 
country  of  higher  price,  which  would  soon 
reduce  prices  to  an  equality.  But  an  exactly 
similar  situation  exists  in  those  cases  in  which 
tariffs  and  transportation  charges  constitute  a 
barrier,  provided  that  barrier  is  not  insuper- 
able. Though  prices  will  not  be  equal,  there 
will  be  a  fixed  difference,  corresponding  to 
the  amount  of  the  tariff  and  transportation 
charges.  Thus  the  level  of  prices  in  one  coun- 
try cannot  be  raised  or  lowered  without  neces- 
sitating a  similar  change  in  other  countries. 
Let  us  see,  then,  what  actually  happens  when 
an  influx  of  gold  occurs  in  a  particular  country, 
and  raises  prices  in  that  country.  So  long  as 
prices  in  other  countries  remain  the  same,  gold 
can  be  used  to  better  advantage  in  paying  for 
imports  from  other  countries  than  in  making 
purchases  at  home.  Some  of  the  gold  will  go 
out  of  the  country  on  this  account.  This  will 
both  tend  to  check  the  rise  of  prices  at  home  and 
to  produce  a  rise  of  prices  abroad;  and  this 
process  of  diminishing  the  supply  of  gold  at 
home  and  increasing  the  supply  of  gold  abroad 
will  continue  until  an  equilibrium   is    reestab- 


The  Quantity  Theory  of  Money         6'] 

hshed,  on  the  basis  of  the  old  relation  between 
international  prices.  The  final  result  will  be 
that  prices,  instead  of  being  considerably  higher 
at  home  and  remaining  unchanged  in  the  rest 
of  the  world,  will  be  just  a  little  higher  the 
world  over.  The  rise  of  price  will  correspond 
to  the  ratio  which  the  increase  of  supply  bears, 
not  to  the  supply  of  gold  in  one  countr\',  but 
to  the  supply  of  gold  existing  in  the  entire 
commercial  world. 


CHAPTER  VI 

THE  PANGS  OF  READJUSTMENT 

A  GENERAL  Condition  of  high  prices  is  not  in 
itself  a  hardship.  If  the  prices  of  all  commodi- 
ties were  the  double  of  what  they  are  now,  and 
rents  and  taxes  were  twice  as  high  (in  dollars) 
as  they  are  now,  and  railroad  fares  and  theatre 
rates  and  all  other  expenditures  that  we  make 
were  likewise  on  double  the  present  monetary 
scale,  nobody  would  be  the  worse  off  or  the 
better  off,  provided  that,  along  with  all  the 
rest,  a  doubling  of  the  price  of  all  kinds  of 
personal  service  had  taken  place — a  doubling  of 
wages,  salaries,  and  all  other  forms  of  compen- 
sation for  work  of  every  kind.  This  is  self- 
evident;  but  if  any  enforcement  of  the  truth  were 
needed  it  might  be  furnished  by  a  glance  at  the 
broad  facts  of  historical  experience.  A  pound 
sterling,  or  a  franc,  or  a  dollar,  went  much 
further,  as  the  saying  is,  in  the  seventeenth  or 
eighteenth  century  than  it  does  to-day;  and 
before  the  discovery  of  America,  with  its  gold 

68 


The  Pangs  of  Readjustment  69 

and  silver  mines,  prices  were  far  lower  still. 
But  people  were  not  better  off;  on  the  contrary 
they  were  far  worse  off.  For  the  gold  or  silver 
that  went  so  far  took  a  vastly  greater  amount 
of  exertion  to  get  in  almost  every  department 
of  human  endeavor. 

We  have  said  that  "nobody"  would  be  worse 
or  better  off;  but  this  is  not  quite  accurate. 
There  is  one  exception  of  great  moment  (as  has 
been  pointed  out  in  a  previous  chapter)  and 
another  of  far  less,  but  still  considerable,  impor- 
tance. This  second  exception  affects  people  in 
so  far  as  they  own  gold  or  other  forms  of  actual 
money,  or  are  interested  in  the  ownership  of 
gold  mines  or  gold  lands.  Of  course,  anything 
that  lowers  the  value  of  gold  (i.  e.,  raises  prices) 
causes  a  dead  loss  so  far  as  these  interests  are 
concerned.  The  other,  and  more  important, 
exception  relates  to  the  holders  of  obligations 
(bonds,  mortgages,  annuities,  etc.)  calling  for 
payment  in  fixed  amounts  of  money,  and  of 
course  likewise  to  those  who  owe  the  obligations. 
The  holders  of  the  obligations  suffer  a  dead  loss, 
those  who  owe  the  obligations  make  a  clear  gain, 
when  the  value  of  thedollar  falls  (i.e.,  when  prices 
rise).  Having  once  noted  these  reservations, 
let  it  be  understood  that  we  henceforth  ignore 


yo  Cost  of  Living 

them,  and  refer  to  the  situation  as  it  aflPects 
people  in  general,  apart  from  the  actual  owner- 
ship of  money  or  gold  or  gold  mines,  and  apart 
from  the  possession  of  claims  or  the  owing  of 
obligations  expressly  payable  in  stated  amounts 
of  money. 

The  adjustment  that  actually  takes  place  is 
extremely  irregular;  we  have  seen  in  Chapter 
II  how  very  different  is  the  rate  at  which  various 
kinds  of  personal  income  can  be  expected  to  rise 
with  a  rise  of  prices  or  fall  with  their  fall.  But 
even  in  the  case  of  commodities  differences  of 
this  kind  exist;  the  price  of  some  things  can  be 
promptly  raised,  of  others  not.  No  consumer 
pays  a  higher  price  because  he  is  told  that  the 
volume  of  money  has  increased  and  that  the 
price  of  everything  ought  to  be  adjusted  to  suit; 
he  pays  because  he  has  to.  Neither  does  any 
dealer  accept  a  lower  price  out  of  regard  for 
monetary  statistics,  but  only  because  he  can 
get  no  more.  What  brings  prices  up  is  a  pres- 
sure which  makes  itself  felt  somehow,  but  about 
the  source  of  which  nobody  troubles  himself; 
and  some  things  yield  to  the  pressure  sooner 
than  others.  There  are  some  things,  for  in- 
stance, which  people  will  not  bring  themselves 
to  do  without,  even  though  the  price  seem  to 


The  Pangs  of  Readjustment  71 

them  unreasonable;  while  there  are  others  for 
which  they  are  slow  to  make  up  their  minds  to 
pay  an  unaccustomed  price.  And  of  course, 
besides  all  this,  there  are  infinite  complexities 
in  the  matter  of  production  and  trade  which 
affect  very  unequally  different  kinds  of  commod- 
ities, with  the  result  that  the  prices  of  some 
respond  much  more  readily  than  do  those  of 
others  to  the  general  pressure  of  circumstance. 
All  this  being  so,  what  reason,  it  might  be 
asked,  is  there  to  think  that  the  readjustment 
will  ever  cover  the  entire  field?  What  reason  is 
there  to  expect  that  ultimately,  on  the  higher 
level,  prices  of  commodities  and  services  will  all 
be  raised  in  the  same  proportion  ?  The  reason  is 
that  it  is  essentially  barter,  not  money,  that  con- 
trols. It  is  not  an  accident,  neither  is  it  due 
to  any  attribute  of  money,  that  a  yard  of  silk 
costs  as  much  as  ten  yards  of  cotton.  The 
cause  of  this  relation  is  to  be  found  in  the  sub- 
stantial facts  relating  to  the  production  of  silk 
and  the  effective  desire  of  people  for  silk,  on 
the  one  hand,  and  the  production  of  cotton  and 
the  effective  desire  of  people  for  cotton  on  the 
other.  By  "effective  desire"  we  mean  desire 
as  measured  and  backed  up  by  people's  willing- 
ness and  ability  to  give  other  things  in  exchange 


72  Cost  of  Living 

for  the  thing  in  question.     If  the  conditions  of 
production — the  amount  of  human  effort  neces- 
sary to  it — remain  the  same  after  as  before  the 
rise  of  prices,  and  if  the  state  of  effective  desire 
also  remains  the  same,  then  there  will  be  an 
irresistible  tendency  to  make  the  ratio  of  the 
price  of  silk  to  that  of  cotton  ten  to  one,  even 
though  that  ratio  may  at  first  have  been  dis- 
turbed.    If,   for   instance,   cotton  was   at   first 
too  cheap,  either  the  supply  would  fall  off,  or  the 
demand  would  increase,  or  both;  and  this  would 
continue  until  its  relative  price  in  comparison 
with  silk  conformed  to  the  underlying  facts  of 
production  on  the  one  hand   and  of  effective 
desire  on   the   other.     And   the   same   kind   of 
thing  is  true  in  regard  to  the  price  of  personal    - 
services.     If  a  skilled  watchmaker  commands  I 
three  times  the  daily  wages  that  a  ditch-digger  f 
does,  this  is  not  because  of  any  mysterious  law 
connecting  watchmaking  with  six  dollars  and 
ditch-digging  with  two  dollars,  but  because  of  ^ 
the  actual  supply  of  and  demand  for  watch- 
makers on  the  one  hand  and  ditch-diggers  on 
the  other;  and  these  conditions  of  supply  and 
demand  being  given,  the  wages  of  the  former 
will  be  three  times  those  of  the  latter,  whatever 
may  happen  to  be  the  value  of  the  monetary 


The  Pangs  of  Readjustment  73 

unit  in  terms  of  which  their  compensation  is 
reckoned. 

We  have  been  speaking  as  though  the  question 
that  concerned  us  had  reference  to  two  definite 
states  of  things — a  lower  and  a  higher  level  of 
prices.  Even  so,  during  the  period  required 
to  complete  the  readjustment,  those  classes  for 
whom  the  readjustment  was  slow  would  suffer 
hardship,  sometimes  serious  hardship,  as  has 
already  been  indicated.  And  there  would  be 
little  consolation  in  the  fact  that  other  classes 
were  making  exceptional  gains,  especially  in 
view  of  the  fact  that  it  is  the  wage-earning 
and  salaried  classes,  in  general  those  least  able 
to  afford  it,  who  would  be  the  chief  losers. 
This  state  of  things — the  passing  from  a  fairly 
definite  state  of  prices  to  another  fairly  definite 
state  in  which  the  level  was  higher — is  pre- 
sented when  a  sudden  marked  change,  or  one 
taking  a  comparatively  short  time  to  bring 
about,  takes  place  in  regard  to  money.  This 
happened,  for  instance,  after  the  discovery  of 
gold  in  California;  and  it  happened,  too,  when, 
during  the  Civil  War,  irredeemable  Govern- 
ment paper  became  the  ordinary  currency  of 
the  United  States.  In  like  manner  a  compara- 
tively sudden  and  definite  change  to   a   lower 


74  Cost  of  Living 

level  of  prices  was  brought  about  by  the  de- 
monetization of  silver  by  a  number  of  the  lead- 
ing countries  of  the  world  about  forty  years 
ago;  for  it  need  hardly  be  explained  that,  when 
silver  and  gold  were  both  used  as  basic  coinage 
metals,  the  combined  volume  of  the  two  played 
the  part  which,  in  the  discussion  of  the  last 
chapter,  was  supposed  to  be  played  by  gold 
alone. 

But  when  prices  do  not  rise  suddenly,  or  in  a 
short  time,  to  a  high  level  and  stay  there,  but 
keep  on  rising,  more  or  less  continuously, 
through  a  long  series  of  years,  the  process  of  i 
readjustment  does  not  come  to  a  definite  end,  I 
but  is  constantly  being  renewed.  Those  hard-  " 
ships  to  which  we  have  been  referring,  and  which 
might  be  dismissed  as  comparatively  unim- 
portant if  their  duration  was  brief,  are  a  far 
more  serious  matter  when  they  seem  to  become 
a  regular  part  of  life  and  no  one  can  set  a  limit 
to  the  time  during  which  they  will  continue 
to  be  felt.  This  present  period  of  rise  in  prices 
has  been  of  extraordinarily  long  duration,  and 
many  good  judges  are  of  the  opinion  that, 
unless  something  not  yet  in  prospect  should  in- 
tervene, prices  will  continue  to  rise  for  a  con- 
siderable period  in  the  future. 


The  Pangs  of  Readjustment  75 

This  opinion,  although  many  considerations 
are  adduced  to  back  it,  I  do  not  beheve  that 
there  is  convincing  reason  to  accept.  It  is 
quite  within  the  possibihties,  in  my  judgment, 
that  the  rise  of  prices  will  come  to  an  end  be- 
fore very  long.  However,  this  question  of  the 
future  is  involved  in  the  utmost  doubt  and  un- 
certainty; and  if  it  should  turn  out  that,  as  a 
matter  of  fact,  the  upward  trend  of  prices  will 
continue  for  a  long  stretch  of  time,  the  griev- 
ances of  those  classes  that  are  in  an  unfavorable 
position  for  securing  the  necessary  readjust- 
ment will  keep  recurring.  Such  a  condition  of 
things  has  the  effect  of  not  only  inflicting 
hardships  on  individuals,  but  naturally  also 
— as  has  been  abundantly  seen  in  recent  years 
— that  of  arousing  grave  discontent  and  giving 
rise  to  much  disturbing  agitation. 

But,  as  has  been  intimated  in  a  previous 
chapter,  there  are  one  or  two  features  of  a  long 
period  of  rising  prices  which  tend  to  mitigate 
its  evil  effects  upon  the  classes  that  suffer  by 
it.  There  is  no  great  consolation  to  the  un- 
prosperous  in  the  excessive  prosperity  of  the 
prosperous,  taken  in  itself;  but  actual  benefit 
comes  to  the  working  classes  during  such  a 
time  through  the  greater  continuity  of  employ- 


']6  Cost  of  Living 

ment,  and  also  in  another  way.  As  has  been 
explained  in  another  connection,  the  prevailing 
rate  of  interest  in  a  time  of  rising  prices  tends 
to  be  higher  than  at  other  times;  and  this  gives 
to  all  persons  of  modest  income  who  are  above 
the  stage  of  actual  poverty  the  opportunity 
for  investing  their  savings  to  better  advantage. 
And,  of  course,  in  like  manner  a  time  of  falling 
prices,  while  primarily  benefiting  the  wage- 
earning  and  salaried  classes,  presents  the  cor- 
responding drawback  in  the  shape  of  less 
continuous  employment  and  of  lower  rates  of 
interest. 


CHAPTER  VII 

FOOD  PRICES  AND  OTHER  PRICES 

In  Chapter  V  it  was  pointed  out  that  when  a 
rise  of  prices  takes  place  only  in  certain  particu- 
lar commodities  or  classes  of  commodities, 
while  the  general  level  of  prices  is  undisturbed, 
the  cause  is  to  be  sought  in  something  affecting 
those  commodities;  but  that  the  cause  of  a 
general  rise  of  prices  must  lie  in  something 
affecting  money,  and  not  commodities.  And 
the  discussions  contained  in  that  chapter  and 
the  following  one  have  related  to  the  phenome- 
non of  a  general  rise  (or  a  general  fall)  of 
prices. 

But  of  course,  simultaneously  with  a  general 
rise  (or  a  general  fall)  brought  about  by  causes 
affecting  money  there  are  going  on  all  the  time 
the  myriad  influences  which  affect  specific  com- 
modities or  classes  of  commodities.  Changes  in 
methods  of  production,  the  discovery  of  new 
sources  of  supply  or  the  exhaustion  of  old  ones, 
the  increase  of  demand  due  to  the  growth  of  pop- 

n 


78  Cost  of  Living 

ulation  or  to  the  new  needs  constantly  being 
created  by  the  progress  of  invention  and  other- 
wise, or,  on  the  other  hand,  the  decKne  of  demand 
brought  about  by  changes  of  fashion  or  other 
causes — all  these  things,  and  many  others,  act  to 
raise  or  depress  (as  the  case  may  be)  the  prices  of 
all  sorts  of  things  during  a  period  of  rising  or  fall- 
ing price-level,  just  as  they  would  if  the  general 
level  of  prices  were  not  being  subjected  to  any 
alteration.  Accordingly,  what  happens  to  the 
priceof  any  particular  thing  is  the  combined  effect 
of  what  would  have  happened  owing  to  causes 
relating  to  the  supply  and  demand  of  that  thing 
if  the  value  of  money  had  remained  unaltered, 
and  what  would  have  happened  if  the  value  of 
money  alone  had  changed  while  the  circum- 
stances of  supply  and  demand  relating  to  the 
particular  thing  had  remained  unaltered. 

So  obvious  and  elementary  is  this  considera- 
tion that  one  would  hardly  feel  it  necessary  to 
mention  it  in  more  than  a  passing  word,  were 
it  not  for  the  almost  incredible  fact  that  one 
frequently  encounters,  in  writers  of  respectable 
standing,  the  assertion  that  the  quantity  theory 
of  money  is  shown  to  be  false  by  the  considera- 
tion that  there  is  no  such  thing  as  a  general 
rise  of  prices,  since  some  prices  rise  a  great  deal 


Food  Prices  and  Other  Prices  79 

at  the  same  time  that  others  rise  very  Httle  and 
still  others  actually  fall.  This  is  very  much  as 
though  one  should  say  that  the  immigration 
of  the  last  decade  has  not  increased  the  popu- 
lation of  the  United  States  because,  while  the 
urban  population  has  greatly  increased,  there 
are  many  rural  districts  in  which  the  population 
has  actually  diminished.  The  truth,  of  course, 
is  that  the  influx  of  immigrants  has  been  a  cause 
acting  to  increase  the  population  of  the  coun- 
try as  a  whole,  but  that  at  the  same  time  causes 
have  been  at  work  which  tend  to  diminish  the 
rural  and  increase  the  urban  population. 

But,  apart  from  the  clearing  up  of  this  chil- 
dish error,  there  is  a  reason  for  dwelling  a  little 
further  upon  the  point.  Let  us  look,  for  a 
moment,  upon  the  arithmetic  of  it.  If  the 
general  level  of  prices  has  risen  30  per  cent., 
say,  and  at  the  same  time  causes  have  been  at 
work  aflPecting  the  commodity  A  in  such  a  way 
that,  taken  in  themselves  they  would  have 
raised  its  price  30  per  cent.,  what  will  actually 
have  happened  is  a  rise  of  the  price  of  A  by 
69  per  cent.;  since  130  per  cent,  of  130  per  cent. 
is  169  per  cent.  On  the  other  hand,  if  the  gen- 
eral level  had  risen  30  per  cent.,  and  causes 
affecting  the  commodity  B  would  in  themselves 


8o  Cost  of  Living 

have  lowered  its  price  by  30  per  cent.,  what  will 
actually  have  happened  is  a  fall  of  the  price  of 
B  by  9  per  cent.;  since  130  per  cent,  of  70  per 
cent,  is  91  per  cent. 

Not  only,  therefore,  will  there  be  a  very  seri- 
ous difference  between  the  way  in  which  the 
prices  of  different  things  are  affected  during  a 
period  of  general  rise,  but  that  difference,  in  the 
case  of  two  commodities  affected  in  opposite 
ways  by  the  special  causes  affecting  them  re- 
spectively, is  far  greater  than  most  persons 
would  imagine  without  stopping  to  think. 
Thus,  take  the  case  just  supposed.  A  rise  of 
30  per  cent,  in  the  general  level  of  prices  is  a 
matter  of  very  high  importance,  but  it  cannot 
be  called  startling  or  extraordinary;  and  a  rise 
or  fall  of  30  per  cent,  in  the  price  of  any  particu- 
lar commodity  is  not  so  unusual  as  to  excite 
wonder  or  to  attract  peculiar  attention.  Yet 
this  rise  in  the  case  of  A,  and  this  fall  in  the  case 
of  B,  when  combined  with  the  common  rise 
in  both,  due  to  the  rise  of  the  general  level,  re- 
sults in  an  extreme  contrast  in  the  story  of 
the  two.  What  was  a  dollar's  worth  of  each 
becomes  a  dollar  and  sixty-nine  cents'  worth  of 
the  one  and  ninety-one  cents'  worth  of  the  other 
— a  discrepancy  of  almost  two  to  one;  or,  to  be 


Food  Prices  and  Other  Prices  8i 

exact,  it  will  take  i86  units  of  B  to  buy  as  much 
of  A  as  lOO  units  of  B  bought  before. 

Now,  in  point  of  fact,  something  like  this 
has  actually  taken  place,  upon  a  scale  sufficient 
to  make  a  profound  impression  on  human  con- 
ditions the  world  over.  Along  with  the  general 
rise  of  the  price-level,  food  prices,  and  especially 
the  prices  of  some  of  the  most  important  food 
products,  have  been  rising  on  their  own  account, 
owing  to  a  multitude  of  specific  causes.  Indeed, 
the  illustration  of  the  commodity  A  which  was 
made  use  of  above,  almost  at  random,  fits  with 
a  fair  degree  of  approximation  the  actual  facts 
of  the  past  ten  or  a  dozen  years  in  the  case  of 
beef,  eggs,  and  some  other  important  prod- 
ucts. A  30  per  cent,  rise  in  the  general  price- 
level,  combined  with  a  30  per  cent,  rise  affect- 
ing the  particular  prices  (which  would  make 
an  actual  rise  of  69  per  cent.),  is  not  far 
from  what  has  taken  place.  At  the  same  time, 
many  other  things  have  simply  risen  by  just 
about  the  amount  that  the  general  price-level 
has  risen;  while  still  others  have  not  risen  at 
all,  and  some  have  even  fallen.  Accordingly, 
food  prices  stand  out  with  great  conspicuous- 
ness;  and  one  is  sometimes  almost  tempted  to 
think  that  the  change  that  has  taken  place  in 


82  Cost  of  Living 

the  price  of  food  is  almost  the  only  important 
advance  in  prices  that  has  occurred. 

While,  of  course,  such  an  impression  is  en- 
tirely unjustified,  and  cannot  be  entertained 
by  any  one  familiar  with  the  statistics,  there 
is  a  reason  for  the  impression  quite  apart  from 
the  arithmetical  facts  just  mentioned.  It  is  not 
only  because  a  number  of  food  products  have 
risen  in  price  far  more  than  the  general  run  of 
commodities,  but  also  because  of  the  extreme 
importance  of  certain  of  these  products  in  the 
domestic  economy  of  a  majority  of  the  people, 
and  especially  of  the  urban  working  classes, 
that  the  rise  in  the  price  of  food  has  dwarfed 
all  other  aspects  of  the  high-price  question  in 
general  discussion.  There  is  no  change  that 
people  in  general  are  more  reluctant  to  make 
in  their  ways  of  living  than  that  of  a  lowering 
of  the  quality  or  a  lessening  of  the  quantity 
of  their  habitual  fare.  In  the  case  of  the  poor, 
and  even  of  families  that  are  not  to  be  called 
poor,  but  w^ho  have  to  live  frugally,  a  rise  of 
food  prices  presents  a  dilemma  either  horn 
of  which  it  is  very  unpleasant  to  choose.  They 
dislike  to  stint  their  accustomed  fare — not  to 
speak  of  any  physical  ill  effects  of  such  a  pro- 
ceeding;  and,   on  the  other  hand,   if  they  in- 


Food  Prices  and  Other  Prices  83 

crease  their  expenditure  on  food  they  must  cut 
into  their  Httle  store  of  comforts  and  their  very 
narrow  margin  of  luxuries,  which  may  easily 
have  the  eflFect  of  still  more  seriously  impairing 
their  happiness  and  possibly  also  their  health. 
Discontent  over  the  rising  prices  of  food  has, 
accordingly,  for  a  number  of  years  past  been 
manifested  in  this  country,  and  still  more  in 
nearly  all  the  leading  European  countries, 
in  ways  extremely  serious  from  a  political  as 
well  as  a  social  standpoint. 

Some  of  the  causes  which  tend  to  produce 
the  increase  of  food  prices  in  our  time  are  ob- 
vious enough.  Most  conspicuous  among  them, 
perhaps,  is  the  constantly  increasing  tendency 
of  the  urban  population  to  gain  in  numbers  at 
the  expense  of  the  rural;  this,  of  course,  tending 
constantly  to  make  the  supply  of  agricultural 
products  smaller  in  comparison  with  the  de- 
mand year  after  year.  It  is  true,  indeed,  that 
improvements  in  agricultural  methods  exercise 
an  important  influence  in  the  opposite  direction, 
since  they  enlarge  the  supply  obtainable  by  a 
given  amount  of  labor,  or  upon  a  given  piece 
of  land;  but,  on  the  other  hand,  we  have  to 
take  into  account  the  cessation  of  that  rapid 
process  of  opening  up  of  new  lands  (especially 


84  Cost  of  Living 

in  this  country  and  South  America)  which,  up 
to  a  score  of  years  ago  or  thereabouts,  exercised 
so  dominating  an  influence  in  the  increasing 
of  the  world's  supply  of  meats  and  grain. 
Exhaustion  of  soils  and  of  fisheries,  too,  must  be 
taken  into  account  for  what  it  may  be  worth. 
Finally,  it  should  be  noted  that,  even  in  the 
case  of  food  products  not  immediately  affected 
by  such  causes  as  we  have  mentioned  or  by 
others  that  might  be  named,  prices  will  natu- 
rally rise  in  sympathy  with  these  others.  No 
sentimental  sympathy,  to  be  sure;  but  if  the 
price  of  meat  becomes  excessive,  and  people 
resort  to  a  greater  use  of  eggs  as  a  substitute, 
this  increased  demand  for  eggs,  unless  matched 
by  a  corresponding  enlargement  of  supply,  will 
raise  the  price  of  eggs  in  a  somewhat  corre- 
sponding degree. 

It  is  not  improbable,  however,  in  my  judg- 
ment, that  the  marked  excess  in  the  rate  at 
which  the  prices  of  leading  food  products  have 
risen,  as  compared  w4th  those  of  the  general 
run  of  commodities,  is  to  be  explained  in  large 
measure  by  considerations  relating  not  to  sup- 
ply but  to  demand.  When  prices  rise,  those 
persons  whose  income  does  not  rise,  or  does  not 
rise  in  a  corresponding  measure,  have  to  econo- 


Food  Prices  and  Other  Prices  85 

mize  somewhere;  and  the  last  thing  in  which 
most  people  are  wilhng  to  economize  is  food. 
The  amount  of  money  that  people  expend  upon 
food  would  in  any  case  much  more  promptly 
rise  to  the  point  called  for  by  the  general  ad- 
vance than  would  the  amount  devoted  to  other 
things;  but  when  to  this  consideration  is  joined 
the  additional  one  that  a  large,  indeed  a  prepon- 
derating, part  of  the  population  have  incomes 
which  lag  behind  the  advancing  price-level, 
it  is  plain  that  this  difference  between  the  be- 
havior of  food  prices  and  other  prices  must 
be  greatly  intensified.  For  these  great  mul- 
titudes, with  their  money  incomes  inadequately 
increased,  will,  so  far  as  possible,  raise  their 
expenditures  for  food  to  the  full  amount  de- 
manded, and  for  that  very  reason  will  be  unable 
to  do  the  like  in  regard  to  other  things.  If  that 
process  of  readjustment  which  formed  the  sub- 
ject of  the  preceding  chapter  were  completed 
in  a  short  time,  it  might  be  expected  that  the 
same  thing  would  happen  as  to  the  readjust- 
ment of  the  relation  of  food  prices  to  other 
prices;  but  when,  as  in  the  present  era  of  rising 
prices,  the  advance  of  the  price-level  continues 
through  a  series  of  years,  and  the  **  pangs  of 
readjustment"    suffered   by  wage-earners   and 


86  Cost  of  Living 

salaried  people  are  likewise  prolonged,  we  have 
a  situation  strongly  tending  to  bring  about  a 
continuous  excess  in  the  rise  of  food  prices  as 
compared  with  the  prices  of  the  general  run 
of  things. 


CHAPTER  VIII 

TARIFF,  TRUSTS,  COLD  STORAGE 

In  popular  discussions  of  the  high  cost  of  living 
in  this  country  a  great  deal  of  attention  has 
been  bestowed  on  the  tariff  and  the  trusts. 
Sometimes  in  all  sincerity,  and  sometimes  as  a 
mere  part  of  the  familiar  stage-play  of  party 
politics,  these  have  been  pointed  to  as  leading 
influences  in  bringing  about  that  great  rise 
of  prices  which  has  been  the  occasion  of  so 
much  concern  in  the  past  ten  or  a  dozen 
years.  It  will  be  desirable,  therefore,  to  ex- 
amine briefly  the  question  of  the  relation  of 
these  two  agencies  to  the  phenomenon  we  are 
considering. 

As  regards  the  tariff",  the  first  point  that 
should  suggest  itself  to  the  mind  is  that  there 
was  no  increase  in  tariff"  rates,  or  none  worth 
serious  consideration,  in  the  period  in  question. 
On  the  face  of  it,  therefore,  to  name  the  tariflf 
as  a  cause  of  the  rise  of  prices  is  to  commit  the 
fallacy  (one  that  we  have  heretofore  had  occa- 
IL  ^7 


88  Cost  of  Living  I 

sion  to  refer  to)  of  assigning  as  the  cause  of  a  i 
new  condition  a  thing  which  is  not  new  but 
which  has  been  operative  all  along.     The  tariflF 
in  1910  made  certain  American  prices  higher  j 
than   they    would    have    been    without    them; 
but  it  did  the  same  in  1900,  and  accordingly  j 
cannot  account  for  the  rise  that  took  place  in 
the  interval. 

But,  although  logically  inadmissible  as  an 
explanation  of  the  rise  of  prices,  it  was  prac- 
tically right  enough  to  fix  attention  upon  the 
tariff  at  the  time  when  people  were  particularly 
feeling  the  pinch  of  high  prices.  For,  though  it 
may  have  had  nothing  to  do  with  the  level  of 
prices  being  higher  than  it  had  been  before,  it 
had  much  to  do  with  the  prices  of  certain  things 
being  as  high  as  they  were.  You  can't  get 
people  to  think  very  seriously  about  a  thing  at 
a  time  when  it  gives  them  no  discomfort,  or 
only  such  discomfort  as  they  have  become 
thoroughly  accustomed  to;  and  while  the  argu-, 
ment  connecting  the  tariff  with  the  change  in 
prices  was  unsound,  it  served  as  a  means  of  get- 
ting a  hearing  for  other  arguments  which  were: 
quite  sound,  and  which,  though  they  applied 
equally  in  low-price  days,  were  in  those  days 
received  with  comparative  indifference. 


Tariff,  Trusts,  Cold  Storage  89 

It  is  claimed,  indeed,  by  the  Republicans, 
and  by  the  opponents  of  tariff  reduction  gen- 
erally, that  the  experience  of  the  past  two  years 
shows  that  not  only  the  assertion  that  the  tariff 
was  a  cause  of  the  rise  of  prices  was  without 
justification — which,  as  we  have  seen,  is  cor- 
rect, since  the  tariff  was  not  raised — but  also 
that  even  a  lowering  of  the  tariff  does  nothing 
to  help  matters,  since  it  has  not  (they  say) 
lowered  prices.  The  prospect  is  that  in  the 
presidential  campaign  of  1916  Republican 
spellbinders  will  find  a  large  part  of  their  stock- 
in-trade  in  the  disappointment  of  the  hopes  of 
a  lowered  cost  of  living  raised  by  Democratic 
spellbinders  in  191 2.  Everybody  good-na- 
turedly allows  for  campaign  exaggeration;  but 
a  complete,  or  almost  complete,  failure  of  ex- 
pectations is  another  matter.  Nevertheless, 
if  there  has  actually  been  no  reduction  in  the 
cost  of  living,  no  lowering  of  the  level  of  Ameri- 
can prices,  since  the  enactment  of  the  Under- 
wood tariff,  this  does  not  by  any  means  show 
that  the  lowering  of  the  tariff  rates  was  of  no 
effect.  In  order  to  prove  that,  it  would  have  to 
be  shown  that  prices  would  not  have  been  still 
higher  if  the  tariff  had  not  been  reduced;  and 
it  is  a  safe  prediction  that  none  of  the  campaign 


1 

90  Cost  of  Living 

speeches  or  campaign  articles  will  attempt  to 
show  anything  of  the  kind. 

In  this  connection  it  will  be  well  to  point  out 
a  distinction  between  explanations  of  a  rise  in  a 
special  set  of  prices  and  explanations  of  a  rise 
in  the  general  price-level.  When,  for  instance, 
we  were  considering  the  rise  in  the  price  of  beef, 
it  might  appear  as  though,  in  regard  to  some 
of  the  causes  assigned  for  it,  we  had  been  guilty 
of  the  fallacy  above  referred  to;  since  these 
causes  were  at  work  (and  some  of  them,  per- 
haps, in  no  less  intensity)  for  many  years  be- 
fore the  beginning  of  che  era  of  rising  prices. 
But  in  point  of  fact  there  was  nothing  wrong 
about  the  argument.  Exhaustion  of  soil,  in- 
crease of  population,  etc.,  were^  in  point  of  fact, 
tending  to  raise  prices  of  the  products  affected 
by  them  before  1897  as  well  as  after;  and  it  was 
legitimate  to  take  account  of  their  effect  in  this 
direction  in  both  periods.  Only,  in  the  earlier 
period  the  upward  tendency  of  these  factors 
was  masked  by  the  downward  tendency  of  the 
general  price-level;  while  in  the  later  period 
the  upward  effect  of  the  special  factors  was  rein-  1 
forced  by  that  of  the  general  one.  Neither  at  | 
the  one  time  nor  at  the  other  did  the  special 
factors  tend  to  affect  the  general  price-level;  j| 


p 

Tariff,  Trusts,  Cold  Storage  91 

when  the  price  of  one  thing  rises  through  causes 
affecting  it  specifically,  while  the  general  con- 
ditions which  determine  the  price-level  remain 
unaltered,  a  compensating  depression  tends  to 
be  produced  in  other  prices — though,  of  course, 
unless  the  thing  in  question  plays  an  enormous 
part  in  the  general  system,  this  compensation, 
spread  out  over  things  in  general,  is  too  minute 
to  be  appreciable. 

For  the  sake  of  simplicity  one  point  has  been 
ignored  which,  when  taken  into  account,  does 
justify  to  some  extent  the  view  that  the  tariff, 
although  not-  itself  raised,  has  been  a  cause 
of  the  rise  of  prices  of  certain  important  com- 
modities. Although  there  was  nothing  newinthe 
tariff  itself,  there  was,  during  the  period  under 
consideration,  a  great  new  development  upon 
which  the  existence  of  the  tariff  had  a  very 
considerable  influence.  Most  of  the  great  con- 
solidations and  combinations  generally  known 
as  Trusts  were  either  created  or  greatly  strength- 
ened and  enlarged  in  the  ten  or  twelve  years 
following  1897.  In  so  far  as  the  existence  of 
Trusts  may  have  been  the  cause  of  a  rise  of 
price  in  the  products  produced  or  controlled 
by  them,  this  has  been  made  possible  by  their 
possession  of  something  like  a  monopoly  in  the 


92  Cost  of  Living 

field  in  which  they  have  operated.  And  where 
the  products  in  question  have  been  such  as, 
under  free  trade,  would  have  been  the  subject 
of  eflFective  competition  from  abroad,  the  tariff 
barrier  has  acted  as  a  buttress  to  that  monopoly. 
So  that  it  may  be  reasonably  charged  that,  I 
while  the  tariff  was  not  in  itself  anything  new,  \ 
there  was  something  new  in  its  operation  as  a  | 
promoter  of  monopoly. 

Concerning  the  degree  in  which,  as  a  matter 
of  fact,  the  prices  of  Trust-made  or  Trust-con- 
trolled articles  have  been  raised  above  what 
they  would  have  been  under  freer  competition, 
we  cannot  go  into  detail.  If,  however,  we 
were  to  attempt  it,  much  more  would  be  neces- 
sary than  a  mere  citation  of  price  statistics. 
To  get  at  the  real  truth  of  such  a  matter  is  an 
extremely  difficult  task.  A  number  of  im- 
portant Trust  products  have  actually  declined 
in  price  at  the  very  time  when  the  prices  of 
most  things  were  rising;  but  this  does  not  show 
that  the  existence  of  the  Trusts  has  had  the 
effect  of  reducing  those  prices.  A  very  striking 
case  is  that  of  petroleum.  Its  price  has  gone 
down  a  great  deal  since  the  Standard  Oil  Com-  \ 
pany  became  the  colossal  power  that  it  has 
long  been  in  this  field;  and  that  fact  is  often  ; 


Tariff,  Trusts,  Cold  Storage  93 

pointed  to  as  proof  that  the  formation  of  the 
Trust  had  the  effect  of  reducing  the  price  of 
oil.  But  this  assertion  is  not  only  subject  to 
the  theoretical  objection  applying  to  this  kind 
of  reasoning  in  general,  but  may  be  met  in  a 
much  more  homely  way.  For  the  fact  is  that 
the  price  of  oil  had  been  declining  for  many 
years  before  the  Trust  got  its  grip  on  the  busi- 
ness, and  at  a  rate  much  more  rapid  than  that 
which  obtained  afterward. 

There  can  be  no  doubt  that  the  economies 
made  possible  by  the  large-scale  production, 
the  high  organization,  the  avoidance  of  dupli- 
cation, and  the  employment  of  great  and 
expensive  adjuncts  to  production  and  distribu- 
tion, which  are  characteristic  of  the  Trusts, 
have  enabled  them,  in  many  instances,  to 
effect  great  economies;  and  it  has  accordingly 
been  possible  for  them  to  make  enormous 
profits  even  without  raising  prices.  The  Stand- 
ard Oil,  with  its  pipe  lines  and  its  wonderful 
organization,  is  a  most  striking  example  of  all 
this.  And  it  must  be  remembered,  too,  that, 
speaking  generally,  no  Trust  is  in  anything 
like  the  position  of  an  absolute  monopoly. 
Even  when  it  completely,  or  almost  completely, 
controls  the  whole  field,  it  is  debarred  from  put- 


94  Cost  of  Living 

ting  its  prices  much  above  the  point  at  which 
they  would  naturally  be  by  the  consideration 
of  potential  competition.  There  is  nearly  al- 
ways enough  possibility  of  its  business  being 
cut  into  by  newcomers  to  impose  upon  it  the 
necessity  of  a  reasonable  amount  of  modera- 
tion. And  in  nearly  all  cases  there  are  not  only 
potential,  but  actual,  competitors  ready  to  seize 
such  an  opportunity  as  would  be  opened  to 
them  if  the  Trust  attempted  to  work  its  ad- 
vantages for  more  than  they  are  worth.  Fi- 
nally, I  do  not  think  there  can  be  any  doubt 
that  the  anti-Trust  legislation,  in  spite  of  the 
slowness  with  which  its  efficient  operation  has 
been  developed,  has  been  exercising  a  very  po- 
tent restraining  influence  on  the  conduct  of  the 
Trusts. 

In  sum,  it  may  be  said,  as  regards  the  tariff 
and  Trusts,  first,  that  neither  can  be  regarded 
as  a  cause  of  the  rise  in  the  general  price-level; 
secondly,  that  while  the  tariff  has  undoubtedly 
made  the  prices  of  many  things  higher  than 
they  otherwise  would  have  been,  it  cannot  be 
assigned  as  a  reason  for  the  rise  of  those  prices 
in  the  present  high-price  period  (except  in  so 
far  as  it  has  been  a  buttress  to  the  Trusts  in 
their    monopolistic    tendencies);    and    finally, 


Tariff,  Trusts,  Cold  Storage  95 

that  it  is  highly  probable  that  the  prices  of 
many  Trust-controlled  products  have  risen 
(or  failed  to  fall)  in  consequence  of  the  building 
up  of  the  Trusts.  Upon  this  last  point  it  is 
proper  to  note,  however,  that  most  of  the  more 
striking  instances  of  great  advance  in  prices 
are  to  be  found  in  things  whose  price  has  not 
been,  or  has  not  been  chiefly,  affected  by  Trust 
operations.  And,  lest  a  false  impression  be 
produced  by  what  has  been  said  about  the 
general  price-level  on  the  one  hand  and  particu- 
lar prices  on  the  other,  it  is  well  to  add  one 
further  remark.  Even  though  the  raising  of 
particular  prices  by  monopoly  methods  may  not 
affect  the  general  price-level,  this  is  by  no  means 
to  say  that  it  is  not  a  general  hardship.  A 
monopoly  price  exacted  by  particular  interests 
is  obtained  at  the  expense  of  the  rest  of  the 
community,  even  though  the  means  by  which 
it  is  paid  may  be  a  lowering  of  the  prices  that 
the  rest  of  the  community  get  for  their  commodi- 
ties and  services. 

"Cold  Storage"  was  included  along  with  the 
tariff  and  the  Trusts  in  the  heading  of  this 
chapter;  but  this  was  not  because  the  subject 
is  in  any  way  of  an  importance  coordinate 
with  that  of  the  other  two.     It  was  brought  in 


h 


g6  Cost  of  Living 

simply  because  it  offers  a  convenient  illustration 
of  a  class  of  absurdities  which  abound  in  every- 
day discussions  of  the  high  cost  of  living. 
When  the  price  of  eggs  reached  the  extraordi- 
nary height  that  has  now  become  familiar 
probably  nothing  was  more  frequent,  among 
people  not  in  the  habit  of  careful  thinking,  than 
to  say  that  it  was  cold  storage  that  had  brought 
it  about.  In  more  than  one  State  bills  were 
introduced  to  prohibit  by  law  the  cold  storage 
of  eggs  for  more  than  a  limited  number  of 
months.  It  was  not  uncommon  to  hear  peo- 
ple say  that  the  wicked  egg  dealers  actually 
stored  eggs  for  a  year,  or  several  years,  and  that 
was  the  way  they  got  those  tremendous  winter 
prices  which  it  was  so  irritating  to  pay.  Now 
whether  cold  storage  of  eggs  be  desirable  or 
not,  it  is  quite  certain  that  it  is  the  last  thing 
in  the  world  that  could  be  resorted  to  for  the 
purpose  of  raising  the  price  of  eggs  in  the  sea- 
son of  scarcity.  It  is  possible  to  believe  that 
somebody  has  got  such  control  of  the  egg  mar- 
ket that  he  can  ask  whatever  price  he  pleases; 
but  it  is  quite  impossible  to  believe  that  because 
there  are  more  of  them  he  can  get  a  higher 
price  than  he  could  if  there  were  fewer.  Cold 
storage  of  eggs  may  raise  their  price  in  the  sea- 


Tariff,  Trusts,  Cold  Storage  97 

son  of  abundance  by  keeping  them  out  of  the 
market;  but  in  the  season  of  scarcity,  if  it  has 
any  effect  it  must  have  the  effect  of  reducing 
the  price.     As  for  holding  them  year  after  year, 
of  course  nobody  would  do  that  unless  he  took 
a  special  pleasure  in  the  contemplation  of  his 
ownership  of  so  precious  a  commodity,  which 
would  compensate  for  the  loss  of  interest  on 
his  money.     Cold  storage  of  meats  is,  of  course, 
a  far  more  important  matter,  and  a  more  com- 
pHcated  one.     This,  too,  ought  to  have  the  effect 
of  equalizing  prices  at  different  times,  not  that 
of  raising  them  at  all  times;*  a  thing  which  is 
obviously    desirable    in    the    general    interest, 
since  it  tends  to  prevent  waste  in  time  of  abun- 
dance and  deprivation  in  time  of  scarcity.     In 
point  of  fact,  this  is  probably,  in  the  main,  the 
way  it  does  operate;  but  there  is  another  factor 
connected   with   it  which   tends  to  counteract 
this  benefit  to  the  public.     The  concentration 
of  the  meat-packing  interests,  with  whatever 

*Besides  equalizing  (or  nearly  equalizing)  them  at  different 
places.  Thus  cold  storage  puts  our  Atlantic  seaboard  practically 
on  a  level  with  the  Middle  West.  But  it  also  puts  Europe  (in 
so  far  as  imports  are  free  from  tariff  burdens)  practically  on  a 
level  with  America;  and  this  levelling  all  round  means  that  meat 
prices  in  the  Western  States  are  much  higher,  and  in  England 
(with  its  free-trade  system)  much  lower,  than  they  would  be 
without  cold  storage;  while  in  our  Eastern  States  an  intermediate 
effect  is  produced. 


9^  Cost  of  Living 

of  monopoly  evils  may  have  resulted  from  it, 
is  closely  bound  up  with  the  cold-storage  sys- 
tem. What  has  been  the  net  outcome  of  these 
two  opposing  influences  is  a  question  too  com- 
plex for  us  to  consider. 


CHAPTER  IX 

MIDDLEMEN,   MARKETS, 
COOPERATION 

A  LARGE  part  of  the  cost  of  most  things  to 
the  consumer  is  due  to  payments  that  have  to 
be  made  to  persons  not  engaged  in  its  ''pro- 
duction," but  in  activities  intervening  between 
that  and  the  arrival  of  the  things  in  the  hands 
of  the  consumer.  This  is  most  emphatically 
true  of  food  products,  for  a  number  of  reasons: 
such  as  the  large  bulk  corresponding  to  a  given 
value,  the  smallness  of  the  individual  daily 
transactions  which  take  up  so  much  of  the  re- 
tailer's time,  the  demand  for  the  conveniences 
of  neighborhood  buying  and  of  daily  delivery, 
the  perishableness  of  many  of  the  articles,  etc. 
Accordingly,  a  great  deal  of  attention  has  been 
directed  to  the  question  of  what  it  may  be  pos- 
sible to  do  to  diminish  the  difference  between 
what  the  "producer"  gets  and  what  the  con- 
sumer pays,  particularly  in  the  case  of  the  foods. 
To  this   subject,  which   cannot   be   treated  to 

99 


icxD  Cost  of  Living 

much  advantage  without  going  into  special 
practical  details,  we  cannot  give  more  than  a 
mere  glance;  but  before  doing  so  it  seems  de- 
sirable to  draw  attention  to  an  elementary 
point  that  is  often  overlooked,  but  which  is  es- 
sential to  a  proper  mental  attitude  toward  the 
facts  of  our  economic  life. 

It  was  for  the  purpose  of  directing  attention 
to  this  point  that  the  words  "production"  and 
** producer"  in  the  foregoing  paragraph  were 
put  in  quotation  marks.  The  common  notion 
that  the  "producer"  performs  a  service  of  an 
essentially  different  kind  from  that  performed 
by  persons  engaged  in  the  processes  that  inter- 
vene between  the  "production"  of  an  article 
and  its  arrival  in  the  hands  of  the  consumer 
is  fundamentally  erroneous.  The  farmer,  in 
point  of  fact,  does  not  produce  (that  is,  he 
does  not  create)  a  grain  of  wheat;  he  only  moves 
certain  grains  of  wheat  and  certain  other  parti- 
cles of  matter  from  one  place  to  another  in 
such  a  way  as  to  enable  the  forces  of  nature  to 
put  a  hundred  grains  where  one  was  before. 
Still  more  plainly  does  the  miner  not  really 
produce  the  coal  that  he  dislodges  from  the 
bowels  of  the  earth  and  brings  to  the  surface. 
And  to  make  either  the  wheat  or  the  coal  of 


Middlemen,  Ma:rkets,,  Cooper alion-     loi 

use,  it  is  just  as  necessary  for  somebody  to  per- 
form, in  some  way  or  other,  the  successive  steps 
required  for  its  transportation  and  distribu- 
tion— including  the  various  processes  of  sale 
which  have  to  be  gone  through,  so  long  as  no 
better  method  of  distribution  is  devised — as  it  is 
for  the  farmer  or  the  miner  to  "produce"  it. 
Accordingly,  some  economists  insist — and  with 
no  little  reason — that  the  word  "production" 
ought  to  be  understood  as  covering  all  these 
activities,  as  well  as  those  usually  denoted  by 
the  term.  But  this  would  inevitably  lead  to  con- 
fusion in  any  ordinary  discussion.  The  point  it- 
self, however,  is  of  great  importance  even  in  so 
elementary  a  discussion  as  that  of  this  little 
book;  for  it  should  serve  to  bring  into  sharp  re- 
lief the  fact  that  the  "middleman"  is  not  to  be 
regarded  as  a  parasite,  but  as  a  substantial 
part  of  the  economic  organization  by  which  the 
needs  of  mankind  are  served. 

While,  however,  the  middleman  is  not  to  be 
regarded  as  a  parasite  or  supernumerary,  the 
question  always  remains  whether  his  services 
are  not  obtained  at  an  exorbitant  cost  to  the 
public.  And  this  question  divides  itself  into 
two.  It  may  be  asked  whether  he  extorts  an 
excessive  profit  from  the  people;  or  it  may  be 


I02  Cojt  of  Living 

asked  whether,  regardless  of  that  question,  a 
method  might  not  be  found  by  which  the  people 
could  get  the  same  service  at  less  cost  to  them- 
selves. The  most  conspicuous  instance,  per- 
haps, of  this  latter  question,  relates  to  the 
organization  of  the  retail  trade  in  provisions 
— including  meat,  milk,  vegetables,  etc.  The 
housekeeper  who  sees  it  stated  by  a  trustworthv 
authority  that  "for  handling  the  goods  and 
selling  them  to  the  consumer  the  retailer 
charges  from  30  to  100  per  cent,  increase  over 
the  wholesaler's  price,  with  an  average  of  45 
per  cent.,"  can  hardly  help  feeling  that  there 
is  something  wrong  about  this;  but  if  she  is  sen- 
sible, she  will  not  rush  to  the  conclusion  that 
the  man  w^ho  keeps  the  little  store  around  the 
corner  is  a  conscienceless  extortioner.  On  the 
contrary,  she  knows,  in  all  probability,  that 
he  is  an  honest  and  hard-working  man  who,  by 
close  attention  to  his  business,  manages  to  make 
a  decent  living  for  his  family  and  perhaps  to 
put  by  a  little  money  for  the  future.  Moreover, 
she  knows  absolutely  that  he  is  in  the  enjoyment 
of  no  privilege  that  is  not  open  to  everybody, 
and  that  therefore  if  he  made  excessive  profits 
they  would  soon  be  cut  down  by  competition. 
But,  having  noted  all  this,  she  might  natu- 


I 


Middlemen,  Markets,  Cooperation      103' 

rally  be  led  to  think  of  the  other  branch  of  the 
question.  Is  it  necessary,'  she  might  ask,  that  . 
there  should  be  this  enormous  number  of  little 
grocery  and  provision  and  delicatessen  stores? 
Would  there  not  be  a  great  economy  in  concen- 
trating the  business  into  few  hands?  A  consid- 
erable reduction  in  the  actual  number  of  stores 
might  be  made  without  serious  inconvenience  to 
housekeepers;  and  besides  reduction  in  number, 
the  mere  fact  of  common  ownership  would  give 
opportunities  for  economy.  As  a  matter  of 
fact,  there  has  developed  a  strong  tendency  in 
both  these  directions,  and  it  is  not  impossible 
that  ultimately  the  margin  between  the  whole- 
sale and  the  retail  price  of  provisions  will  be 
cut  down  in  a  considerable  measure  through 
the  substitutipn  of  large-scale  for  small-scale 
retailing.  A  large  store  can,  speaking  generally, 
conduct  its  business  at  a  lower  cost  per  dollar 
of  sales  than  a  small  one;  and  either  a  large 
store,  or  a  chain  of  many  stores  under  one  own- 
ership, can  do  its  buying  to  better  advantage, 
not  only  because  of  getting  better  terms  in  its 
purchases,  but  also  because  of  being  able  to 
shift  its  supply  from  store  to  store  as  if  may 
happen  to  be  needed,  thus  avoiding  waste  and 
economizing  stock. 


I04  Cost  of  Living 

Just  how  much  can  be  accomplished  in  this  I 
way  it  is  difficult  to  say.  Some  advantages 
the  little  store  has,  especially  in  the  poorer 
sections.  The  owner,  with  incidental  assist- 
ance in  many  odds  and  ends  of  ways  from  his 
family,  can  make  it  pay  to  serve  petty  needs  of 
his  customers  which  the  large-scale  business 
concern,  with  every  service  systematized  and 
salaried,  would  find  it  unprofitable  to  fill. 
One  point  that  is  perhaps  seldom  noticed  is  that 
the  little  retailer  of  goods,  especially  of  meats 
and  what  are  generally  called  *' provisions," 
is  kept  busy  enough.  Neither  owner  nor  em- 
ployees (if  there  are  any)  is  often  seen  idle. 
In  other  words,  there  is  little  actual  waste  of 
labor;  nor  is  there  any  reason  to  believe  that 
this  labor  (of  owner  and  employee  together) 
gets  much  more  compensation  than  it  would  in 
the  large-scale  business. 

Besides  improvements  in  the  organization 
of  retailing,  important  economies  might  be 
effected  in  the  wholesale  business  intervening 
between  the  producer  and  the  retailer.  As 
regards  both  the  one  and  the  other,  the  estab- 
lishment of  public  markets,  owned  and  con- 
trolled by  the  municipality,  is  one  of  the  methods 
most    strongly    urged    by    persons    who    have 


Middlemen,  Markets,  Cooperation      105 

studied  the  subject.      In  both  cases  the  effect 
would  be  to  give  the  buyer — the  retailer  in  the 
one   case    and    the   consumer   in   the   other — a 
better  chance  to  know  actual  conditions,  and 
to  deal  directly  with  the  person  who  can  supply 
him  upon  the  best  terms.     In  the  case  of  the 
retail    markets    there  is,   of   course,   the   addi- 
tional   advantage    of    enabling    the    producer, 
in    many   cases,   to   come   into   direct    contact 
with  the  consumer,  thus  eliminating  the  middle- 
man   altogether;   but   it   must   be   remembered 
that  this  advantage  is  not  so  absolute  as  might 
at  first  sight   appear.     In  order  to  effect  this 
elimination  it  is  necessary  for  the  producer  in 
all  cases,  and  for  the  consumer  in  most,  to  do 
middleman's   work,    which    always    costs    time 
and  often  money.     It  may  be  more  profitable 
to  the  farmer  to  sell  his  potatoes  to  the  com- 
mission merchant  at  $1  a  barrel  than  to  haul  them 
into  town  and  get  $2  a  barrel  by  selling  them  in 
pecks  and   quarter-pecks  in  the  open  market; 
and  it  may  be  more  profitable  to  the  house- 
keeper to  pay  10  cents  a  quarter-peck  for  her 
potatoes,  ordered  of  the  retailer's  clerk  at  her 
door   and    delivered    in    her    kitchen,    than   to 
get  them  at  8  cents  by  going  to  the  market  for 
them.     All  these  things  vary  enormously  with 


io6  Cost  of  Living 


i 


circumstances;  were  the  case  so  simple  as  some 
people  imagine,  reforms  or  improvements  of 
this  nature,  instead  of  moving  at  a  snail's  pace, 
would  carry  everything  before  them  in  a  very 
short  time. 

We  cannot  go  further  into  this  class  of  ques- 
tions; what  has  been  said  is  merely  in  the 
nature  of  an  indication  of  the  elements  that 
enter  into  them.  But  in  conclusion  it  should 
be  stated  that,  after  all  allowance  is  made  for 
difficulties  and  limitations,  there  can  be  no 
doubt  that  the  economies  that  are  offered  by  the 
various  possible  improvements  in  business  or- 
ganization and  methods,  taken  conjointly,  form 
a  great  aggregate.  The  strides  that  are  being 
made  in  many  directions,  and  the  practical 
endeavors  that  are  being  put  forth,  are  amply 
justified  by  the  possibilities  of  general  benefit. 

One  means  of  cutting  down  that  part  of  the 
cost  of  living  which  consists  in  payments  to 
middlemen,  namely  the  cooperative  store,  has 
attracted  extraordinarily  little  interest  in  this 
country.  It  has  attained  very  large  dimen- 
sions in  Great  Britain,  where  it  is  estimated 
that  something  like  one  seventh  of  the  needs 
of  the  people  is  supplied  through  these  estab- 
lishments.    The  principle  upon  which  the  mosJ«' 


lOSlfl' 


Middlemen,  Markets,  Cooperation      107 

important  of  these,  so  far  as  the  working  classes 
are  concerned — the  Rochdale  stores — are  con- 
ducted is  excellent,  not  only  as  a  means  of 
saving  in  purchase-price,  but  also  as  an  encour- 
agement to  thrift.  The  price  charged  the  mem- 
bers for  the  goods  they  buy  is  the  standard 
retail  price,  and  the  saving  comes  in  only  at 
the  end  of  the  quarter.  This  takes  the  shape 
of  a  division  of  the  profits  accruing  during  the 
quarter,  among  all  the  members,  in  proportion 
to  the  amount  they  have  purchased;  that  is, 
they  get  back  a  certain  percentage  of  the  price 
originally  paid.  As  a  rule,  this  is  about  10 
per  cent.  In  reckoning  the  profit,  a  return  of 
5  per  cent,  per  annum  is  first  allowed  for  the 
capital  invested;  this  capital  being  supplied 
by  the  cooperators  themselves  in  shares  of 
small  denominations.  Whoever  desires  to  in- 
vest the  quarterly  dividend  on  his  purchases 
in  such  shares  instead  of  taking  it  out  in  cash 
may  do  so;  and  in  point  of  fact  it  has  been 
through  the  general  prevalence  of  this  practice 
that  the  capital  of  the  stores  has  grown  from 
small  beginnings  to  the  large  volume  which  has 
made  possible  the  great  development  of  the 
Rochdale  plan.  It  is  plain  that  several  ele- 
ments must  conspire  to  bring  about  the  sue- 


io8  Cost  of  Living 

cess  and  growth  of  such  a  scheme.  It  requires 
able,  economical,  and  honest  management;  it 
requires  a  strong  desire,  on  the  part  of  many 
persons,  to  effect  what  is,  after  all,  though  a 
substantial,  yet  a  modest,  saving;  and  it  in- 
volves a  certain  continuity  of  personal  rela- 
tions which  in  a  rapidly  shifting  population  is 
more  or  less  difficult  to  obtain.  The  slowness 
of  the  growth  of  the  cooperative  plan  in  our 
country  may  largely  be  ascribed  to  the  high 
pay  which  is  required  to  obtain  the  services  of 
men  of  ability  and  energy,  the  comparative 
disregard  among  us  of  moderate  savings  that 
have  to  be  carefully  planned  for,  and  the  rapidity 
with  which  changes  take  place  both  in  popula- 
tion and  in  business  conditions. 


CHAPTER  X 
LOW  PRICES  AND  DISCONTENT 

It  is  with  high  prices  and  rising  prices  that  we 
have  been  chiefly  occupied  throughout  this 
httle  book;  but  it  was  pointed  out  in  the  first 
chapter  that  the  present  era  of  high  prices  was 
preceded  by  a  long  period  during  which  it  was 
low  prices  and  falling  prices  that  constantly 
gave  the  world  matter  for  serious  concern. 
It  will  be  well  to  devote  a  little  attention  to 
some  of  the  leading  features  of  that  low-price 
period,  which  began  approximately  with  the 
demonetization  of  silver  by  Germany  and  the 
United  States  in  the  early  seventies,  and  ended 
approximately  with  the  opening  up  of  great 
new  supplies  of  gold  in  the  late  nineties  of  the 
last  century. 

It  is  somewhat  remarkable  that  in  the  low- 
price  period,  as  well  as  in  the  high-price  period, 
the  prices  of  agricultural  products — at  least 
in  our  own  country — played  the  leading  part. 
The  reason,  however,  was  largely  different  in 

109 


no  Cost  of  Living 

the  two  cases.  The  low  price  of  grain,  especi- 
ally wheat,  did,  indeed,  bear  hard  upon  the 
farmer,  partly  because  he,  like  the  wage-earner, 
is  a  man  who  can  little  afford  any  loss;  but 
there  were  two  other  reasons  which  played  an 
even  more  crucial  part  in  the  matter.  In  the 
first  place,  the  farmer,  being  an  employer  of 
day  laborers,  whose  wages  (as  we  have  seen 
in  Chapter  II)  are  slow  to  fall,  as  well  as  slow  to 
rise,  had  to  pay  an  almost  undiminished  amount 
for  his  help  while  receiving  a  greatly  reduced 
price  for  his  crop;  his  margin  of  profit  being  thus 
often  reduced  to  little  or  nothing.  And,  sec- 
ondly, in  this  country  a  large  proportion  of  all 
the  farmers,  especially  in  the  West,  had  bor- 
rowed money  on  mortgage,  and  these  mortgages 
had  to  be  repaid  in  the  full  number  of  dollars 
they  called  for,  without  any  account  being 
taken  of  the  increased  value  of  the  dollar  as 
measured  in  the  farmer's  products.  It  was, 
therefore,  in  the  triple  capacity  of  poor  man 
(i.  e.,  more  or  less  poor  man),  employer  of 
labor,  and  debtor  that  the  farmer  suffered  in 
the  low-price  period. 

In  the  political  agitation  over  the  silver  ques- 
tion it  was  as  debtor  that  the  farmer  chiefly 
figured;    and  indeed  the  *' debtor   class"   held 


Low  Prices  and  Discontent  ill 

the  centre  of  the  stage  throughout  that  agita- 
tion. The  restoration  of  silver  to  its  old  place 
in  our  monetary  system,  by  the  reestablishment 
of  free  coinage  at  the  ratio  of  sixteen  to  one, 
would  have  lowered  the  value  of  the  dollar  and 
thus  have  made  it  easier  for  debtors  in  general 
to  pay  their  obligations,  and  in  particular  for 
farmers  to  get  rid  of  the  burden  of  their  mort- 
gages. It  is  not  fair  to  condemn  this  proposal 
out  of  hand  as  pure  and  unalloyed  dishonesty; 
seeing  that,  as  a  matter  of  fact,  debts  were 
being  repaid  in  dollars  worth  substantially 
more  than  the  dollars  that  were  borrowed. 
And  this  is  not  the  place  to  set  forth  the  rea- 
sons why,  in  spite  of  a  certain  plausibility  in  the 
free-silver  scheme,  a  certain  degree  of  prima 
facie  equity  in  it,  the  proposal  was  one  to  be 
emphatically  condemned  from  the  standpoint 
of  sound  ethics.  It  must  suffice  to  say  that 
these  ups  and  downs  in  the  value  of  money  are 
part  of  the  risk  that  borrowers  and  lenders  take 
all  the  time;  and  that  for  the  Government 
occasionally  to  interfere  to  protect  the  losing 
side  by  an  act  of  legislation,  subject  to  all  the 
chances  and  changes  of  politics,  would  lead  to 
all  kinds  of  uncertainty  and  demoralization. 
And   it   is   most   interesting  to  note  that  this 


112  Cost  of  Living 

argument,  which  was  insisted  upon  by  the  up- 
holders of  sound  money  throughout  the  silver 
agitation,  and  especially  during  the  great  cam- 
paign of  1896,  has  in  these  latter  years  re- 
ceived an  impressive  reinforcement.  For  who 
has  heard  of  any  poHtical  agitation  for  the  pro- 
tection of  the  creditor  class,  now  that  the  value 
of  the  dollar  has  been  rising  as  rapidly  as  in 
those  other  days  it  was  falling?  Yet  that  is 
what  might  naturally  have  been  expected  to 
happen  if  the  clamor  of  the  ''debtor  class" 
had  resulted  in  the  debasement  of  the  currency 
twenty  years  ago. 

One  word  about  the  nature  of  the  "debtor 
class'*  itself.  The  phrase  is  suggestive  of  pov- 
erty; and  so  far  as  the  small  farmers  are  con- 
cerned, the  suggestion  is  appropriate  enough. 
But  outside  of  mortgage-burdened  farmers, 
the  actual  debtor  class  consisted,  in  the  main, 
not  of  poor  men,  but  of  rich  men.  In  the 
modern  industrial  and  commercial  system  it 
is  those  who  undertake  great  enterprises,  who 
carry  on  the  manufacturing,  transportation, 
and  business  activities  of  the  country,  that 
are  the  big  debtors.  These  people  were  all 
strongly  opposed  to  free  silver,  in  spite  of  their 
owing  enormous  sums  that  had  been  borrowed 


Low  Prices  and  Discontent  113 

for  the  launching  or  conducting  of  their  various 
enterprises.  It  is  not  necessary,  on  this  ac- 
count, to  give  them  credit  for  phenomenal 
honesty  or  scrupulousness;  for  they  well  knew 
that  any  gain  that  might  accrue  to  them  from  a 
scaling  of  their  debts  would  be  far  more  than 
balanced  by  the  universal  injury  done  to  busi- 
ness through  the  shattering  of  confidence  in 
the  soundness  of  the  nation's  currency  and  the 
integrity  of  its  financial  policy. 

Turning  now  from  these  questions  of  ethics 
and  politics,  let  us  look  for  a  moment  at  another 
cause  of  widespread  discontent  and  distress 
in  the  period  of  falling  prices.  As  has  been 
pointed  out  in  a  previous  chapter,  the  immedi- 
ate effect  of  falling  prices  upon  business  men — 
manufacturers  and  merchants — is  unfavorable 
and  depressing;  the  proceeds  that  they  derive 
from  the  working  up  of  raw  material  or  the 
sale  of  finished  goods,  which  they  have  bought 
at  certain  prices,  are  less  than  they  had  cal- 
culated upon  getting  on  the  basis  of  those  prices. 
In  addition  to  this,  as  has  just  been  mentioned, 
business  is  largely  carried  on  upon  borrowed 
money,  and  the  burden  of  repaying  this  be- 
comes heavier  in  consequence  of  the  lowered 
prices  of  the  goods  dealt  in  or  produced.     There 


114  Cost  of  Living 

are,  to  be  sure,  as  we  have  seen  in  Chapter 
II,  compensating  tendencies;  but  these  do  not 
make  themselves  felt  at  once.  And  the  worst 
of  it  is  that  anything  that  affects  unfavorably 
those  who  conduct  the  business  enterprises  of 
a  country  is  calculated  to  have  consequences 
far  more  serious  than  the  mere  hardship  suf- 
fered by  those  individuals  themselves.  When- 
ever profits  are  (or  even  seem)  unusually  small, 
enterprise  is  discouraged;  and  this  slackening 
of  enterprise  rapidly  spreads  its  depressing  con- 
sequences throughout  the  whole  community 
in  the  shape  of  the  most  substantial  of  all  eco- 
nomic evils,  unemployment  and  the  diminution 
of  production.  Thus,  over  and  above  complaints 
like  those  of  our  farmers  and  our  "debtor  class," 
there  was,  in  Europe  as  well  as  in  this  country, 
during  the  low-price  era  which  ended  about 
eighteen  years  ago,  a  constantly  recurring  wail 
of  "hard  times"  arising  from  frequent  depres- 
sions in  industry  and  trade. 

Serious  as  were  the  evils  connected  with  the 
prevalence  of  low  and  fallen  prices,  they  were 
undoubtedly  exaggerated  in  the  current  talk 
and  discussion  of  those  days;  and  the  cry  of 
hard  times,  in  particular,  was  raised  more  fre- 
quently and  more  loudly  than  the  facts  justified. 


Low  Prices  and  Discontent  115 

This,  unfortunately,  is  natural  enough;  com- 
plaining is  very  apt  to  be  vocal,  while  content- 
ment is  usually  silent.  What  is  more  peculiar, 
and  quite  deserving  of  special  notice,  is  the 
fact  that  the  classes  that  are  not  only  not  hurt 
by  low  prices,  but  actually  benefited  by  them, 
caught  the  contagion  of  complaining,  and  often 
wore  as  long  faces  as  anybody.  One  heard  so 
much  about  distress  and  hard  times  that  one 
almost  forgot  to  ask  whether  he  himself  was 
affected  in  the  same  way  as,  from  the  tone  of 
nearly  everything  that  was  being  said  and  writ- 
ten, it  appeared  that  all  the  world  was.  In  so 
far  as  this  meant  sympathy  for  others  and  for- 
getfulness  of  self,  it  was  all  very  well.  But 
the  fact  is  that  these  people  who  were  well  off 
in  the  low-price  period  were  not  a  few  solitary 
exceptions,  but  great  multitudes;  and  not  to 
take  account  of  this  was  to  get  a  false  and  exag- 
gerated impression  of  general  calamity.  The 
present  writer  well  remembers  the  acute  way  in 
which,  in  a  chance  conversation  on  the  hard 
times,  some  twenty  years  ago,  a  distinguished 
university  professor  (a  philologist,  not  an  econo- 
mist) touched  off  the  situation:  "Wait,"  said 
he,  "till  we  feel  the  pinch  of  prosperity." 
The  thing  is  worth  remembering:  for  there   is 


ii6  Cost  of  Living 

no  doubt  that  now,  as  then,  we  are  in  constant 
danger  of  dwelling  exclusively  on  the  bad  side 
of  the  situation,  and  not  only  exaggerating  it, 
but  forgetting  that  it  has  any  good  conse- 
quences for  anybody. 


CHAPTER  XI 

HIGH  PRICES  AND  DISCONTENT 

To  THE  grievances  that  go  with  high  prices,  and 
the  discontent  which  they  arouse,  it  is  needless 
to  devote  much  space,  since  these  have  been 
more  or  less  the  subject  of  our  attention  all  the 
way  through.  What  is  most  worth  noting  is 
the  difference  in  psychological  tone,  and  in 
political  and  social  effect,  between  the  discon- 
tent aroused  by  the  high  prices  and  that  which 
was  excited  by  the  low.  Perhaps  the  most 
important  point  of  difference  is  that  whereas 
the  low  prices  were  thought  of,  even  by  those 
who  suffered  most  severely  from  them,  as  due 
merely  to  some  peculiar  failure  in  the  working 
of  the  money  mechanism  or  some  other  special 
part  of  the  economic  order,  high  prices  are 
instinctively  thought  of  by  most  people  as 
meaning  an  essential  change  for  the  worse  in  the 
conditions  of  existence.  It  is  for  this  reason 
that  the  phrase  ''high  cost  of  living"  is  almost 
universally  used  instead  of  high  prices.     And 

117 


ii8  Cost  of  Living 

the  consequences  of  this  confusion  of  thought 
have  been  extremely  serious.  If  people  habitu- 
ally spoke  of  high  prices  instead  of  *'high  cost 
of  living,"  they  would  still,  indeed,  complain, 
and  justly  complain,  of  the  burdens  under  which 
they  labored  in  consequence  of  them;  but  there 
would  be  a  better  chance  of  their  seeing  the 
matter  in  the  light  of  an  ordinary  economic 
hardship,  due  to  circumstances  of  a  special 
nature  and  quite  possibly  destined  to  give 
place  in  a  not  distant  future  to  a  wholly  different 
condition  of  things. 

Distress,  whether  temporary  or  otherwise,  is, 
of  course,  always  a  feeder  to  socialistic  and 
semi-sociaHstic  agitation;  but  its  efficacy  for 
this  purpose  is  vastly  increased  when  the  dis- 
tress comes  to  be  looked  upon  as  part  of  the 
permanent  order  of  things.  It  will  be  remem- 
bered that  the  most  powerful  weapon  in  the 
arsenal  of  Karl  Marx  and  other  sociaHsts  of 
half  a  century  ago  was  to  be  found  in  their 
theory  that  devastating  panics  were  not  merely 
an  occasional  phenomenon  of  the  modern  in- 
dustrial order,  but  so  inherent  a  part  of  it  that 
they  were  bound  to  grow  both  in  intensity  and 
in  frequency  so  long  as  that  order  continued 
to  exist.     It  was  not  by  pointing  to  them  as 


High  Prices  and  Discontent  119 

occasional  temporary  disturbances,  but  by 
insisting  on  their  permanent  and  dominating 
place  in  the  existing  order,  that  they  made  the 
fact  of  panics  so  essential  a  part  of  their  prop- 
aganda. And  in  like  manner,  though  of 
course  not  in  so  definite  a  way,  the  notion  that 
the  high  prices  of  the  past  decade  or  more  mean 
an  increase  in  the  difficulty  of  maintaining  life 
— an  increase  bound  up  with  the  fundamental 
facts  of  modern  life  and  not  merely  caused  by  a 
temporary  maladjustment — has  had  a  great  deal 
to  do  with  the  spread  of  socialistic  notions  under 
the  influence  of  economic  discontent. 

Another  difference  regarding  the  discontent 
created  in  the  two  periods  turns  on  the  nature 
of  the  classes  affected,  and  on  the  way  in  which 
they  are  affected.  The  farmers  and  planters 
who  were  getting  low  prices  for  their  crops, 
while  their  expenses  were  comparatively  little 
diminished  and  their  mortgage  debts  had  to  be 
paid  in  full-value  money,  faced  a  situation  which 
looked  like  ruin  to  very  many  of  them,  and 
really  meant  ruin  to  a  considerable  number. 
The  various  privations  to  which  people  of  the 
wage-earning  and  salaried  classes  have  been,  in  a 
greater  or  less  degree,  subjected  as  a  conse- 
quence of  the  high  prices,  are  hard  to  bear,  and 


I20  Cost  of  Living 

sometimes  mean  serious  injury;  but  these  things 
do  not  bear  down  upon  people  in  such  desperate 
fashion  as  does  the  ruin  of  one's  business  or 
the  reduction  of  a  prosperous  yeoman  to  the 
condition  of  a  hopeless  debtor.  More  people 
are  adversely  affected,  but  there  is  no  class  that 
feels  as  if  it  were  being  absolutely  crushed. 
Furthermore,  the  great  class  most  seriously  af- 
fected by  high  prices,  namely  the  wage-earners, 
are  in  possession,  through  the  machinery  of  their 
organizations,  of  the  means  of  bringing  pres- 
sure to  bear  to  hasten  the  process  of  readjust- 
ment. By  means  of  strikes,  or  threats  of 
strikes,  they  can  secure,  in  a  fairly  reasonable 
time,  such  changes  in  their  rates  of  pay  as  are 
justly  called  for  when  a  general  rise  of  the  price- 
level  has  become  an  established  and  acknowl- 
edged fact. 

On  the  other  hand,  discontent  among  urban 
populations  gets  itself  more  constantly  heard 
through  the  press,  and  more  actively  manifested 
through  public  meetings  and  other  means  of 
agitation,  than  does  that  of  the  rural  element. 
The  social  unrest  of  recent  years,  with  its  ac- 
companiment of  radical  proposals  of  all  kinds — 
some  of  them  sober  and  well  worthy  of  consider- 
ation, others  wild   and  thoughtless — has  been 


High  Prices  and  Discontent  121 

spread  about  almost  exclusively  in  the  cities. 
A  striking  illustration  of  the  way  in  which  city 
conditions,  and  especially  city  grievances,  are 
apt  to  monopolize  public  attention  is  furnished 
by  the  history  of  the  minimum-wage  agitation, 
especially  as  regards  saleswomen  and  other 
women  employees.  It  is  not  proposed  here  to 
pass  judgment,  or  even  to  hint  at  a  judgment, 
on  the  merits  of  this  extremely  difficult  question. 
The  only  object  in  referring  to  it  is  to  point 
out  how  complete  has  been  the  absence  of  any 
reference  to  rural  conditions  in  comparison  with 
urban.  How  long  may  be  the  hours  of  work 
and  how  small  the  wages  upon  farms  nobody 
stops  to  think;  nor,  although  the  drift  from  the 
country  to  the  city  is  one  of  the  most  conspicu- 
ous subjects  of  general  solicitude  and  lamenta- 
tion, does  any  one  stop  to  ask  whether  the 
assurance  of  a  comfortable  wage  in  city  occupa- 
tions would  increase  the  lure  of  the  great  city 
to  young  women  who  under  present  conditions 
decide  that,  on  the  whole,  with  all  its  drawbacks, 
home  life  in  the  native  village  or  on  the  native 
farm  is  to  be  preferred. 


chapter  xii 

the  multiple  standard  and  the 
compe;nsated  dollar 

After  all  k  said  and  done,  the  central  fact  re- 
mains that  changes  in  the  value  of  money, 
whether  up  or  down,  cause  a  great  deal  of  in- 
justice to  multitudes  of  individuals  and  work 
serious  injury  to  the  community  as  a  whole. 
To  serve  as  a  measure  of  value  and  as  a  stand- 
ard of  deferred  payments  have  always  been 
regarded  as  functions  of  money  coordinate  in 
importance  with  that  of  serving  as  the  medium 
of  exchange.  One  of  the  great  reasons  for  the 
use  of  the  precious  metals — gold  and  silver 
in  former  times,  and  gold  alone  in  the  last  few 
decades — as  the  monetary  basis  of  the  world's 
business,  has  been  that  they  were  fairly  stable 
in  value,  and  vastly  more  stable  than  anything 
else  that  was  capable  of  being  substituted  for 
them.  It  was  always  recognized,  however, 
that  gold  (or  gold  and  silver)  was  subject  to 
serious  fluctuations  of  value — that  is,  of  pur- 

122 


The  Multiple  Standard  123 

chasing  power  in  relation  to  things  in  general — 
and  that  in  so  far  as  these  fluctuations  existed 
its  functions  as  a  measure  of  value  and  as  a 
standard  of  deferred  payments  was  imper- 
fectly fulfilled.  Accordingly,  economists  have 
long  had  under  discussion  the  possibilitv  of 
substituting  some  other  method  for  the  per- 
formance of  these  functions;  some  method 
which  would  emancipate  the  standard  from 
dependence  on  the  ups  and  downs  of  the  value 
of  a  particular  commodity,  even  a  commodity 
so  comparatively  stable  in  value  as  is  gold. 
And  there  has  never  been  a  time  when  the 
desirability  of  such  steadying  of  the  value  of 
the  standard  was  so  impressed  upon  the  minds 
of  persons  interested  in  the  subject  as  has  been 
the  case  in  the  last  few  years;  for  there  has 
never  been  a  time  when  the  price-level  has 
been  subjected  to  two  such  profound  and  pro- 
tracted disturbances,  in  opposite  directions  and 
in  immediate  succession,  as  the  last  twoscore 
years  have  witnessed. 

To  emancipate  the  standard  of  value  from 
those  fluctuations  to  which  the  dollar  is  exposed, 
nobody  would  propose  the  substitution  of  any 
other  commodity  in  the  place  of  gold.  Such 
substitution  would  sacrifice  the  extraordinary 


124  Cost  of  Living 

advantages  which  gold  presents  as  a  medium 
of  exchange,  and  would  not  only  fail  to  provide 
any  compensating  gain  in  the  shape  of  greater 
stability  of  value,  but  would  actually  bring 
about  far  greater  and  more  violent  fluctuations 
than  those  to  which  gold  has  been  subject. 
But  the  possibility  of  a  multiple  standard — a 
standard  resting  upon  a  combination  of  a  large 
number  of  commodities — has  long  engaged  the 
attention  of  economists,  and,  from  time  to  time, 
also  that  of  statesmen  and  men  of  affairs.  If 
such  a  combination  consisted  of  a  number  of 
articles  fairly  reflecting  the  whole  range  of 
human  demands,  each  entering  in  a  degree  pro- 
portional to  its  actual  importance,  it  might 
reasonably  be  held  that  he  who  received  a 
given  number  of  units  under  that  standard 
was  getting  a  fixed  amount  of  value,  whether 
it  was  to-day  or  ten  years  ago  or  ten  years 
hence.  As  was  explained  in  Chapter  IV,  this 
would  not  by  any  means  be  strictly  true;  very 
serious  diff'erences  would  still  arise  as, regards 
the  actual  eff'ect  upon  the  diflFerent  classes  of 
the  community  of  receiving  what  in  some  sense 
to  the  community  as  a  whole  was  a  fixed  value. 
But  at  all  events  no  such  general  and  sweeping 
ups  and  downs  in  the  true  value  of  the  standard 


The  Multiple  Standard  125 

would  take  place  as  have  actually  been  ex- 
perienced under  the  gold  standard.  In  so  far 
as  the  selected  combination  of  commodities 
might  be  accepted  as  correctly  indicative  of  all, 
the  price-level  would  be  absolutely  stationary. 

The  actual  use  of  the  commodities  themselves 
as  a  medium  of  exchange  would  of  course,  how- 
ever, be  altogether  impossible.  The  thing  that 
passed  from  hand  to  hand  would  have  to  be 
purely  representative.  But  it  would  not  do 
to  represent  the  list  of  commodities  by  means 
of  certificates  in  the  way  in  which  gold  coin 
or  bullion  is  now  represented.  A  gold  certifi- 
cate is  an  order  for  a  certain  amount  of  gold, 
redeemable  in  gold  at  any  time  at  the  Treasury. 
It  would  be  absolutely  out  of  the  question  to 
employ  certificates  under  the  multiple  standard 
in  this  way.  Nobody  would  want  to  take,  and 
the  Government  could  not  undertake  to  give, 
a  pound  of  beef,  a  hundredth  of  a  bale  of  cotton, 
a  tenth  of  a  ton  of  steel,  etc.,  in  redemption  of 
a  multiple-standard  certificate  when  its  re- 
demption was  desired.  The  multiple  standard 
would  have  to  be  put  into  effect  in  a  less  direct 
fashion.  And  the  way  in  which  it  has  usually 
been  proposed  to  accomplish  this  is  simple 
enough.     The  medium  of  exchange  need  not  be 


126  Cost  of  Living 

altered  at  all;  all  business  would  still  be  trans- 
acted in  terms  of  gold  dollars,  the  multiple 
standard  coming  in  not  as  a  substitute  but  as  a 
corrective.  This  would  be  accomplished  by 
means  of  the  index  number. 

The  index  number  is  a  number  obtained  by 
combining  the  prices  of  a  designated  series  of 
commodities  in  such  a  way  as  to  register  the 
rise  or  fall  of  the  general  price-level.  Many 
different  methods  have  been  employed  for 
this  purpose;  it  will  be  sufficient  here  to  indicate 
one.  A  table  is  made  at  a  given  date  showing 
the  price  of  a  suitably  chosen  amount  of  each 
of  the  commodities  fixed  upon.  The  sum  of  all 
these  prices  is  taken.  Whatever  this  sum  may 
be,  the  index  number  at  this  initial  date  is  called 
lOO;  and  at  any  other  date  the  index  number  is 
greater  or  less  than  lOO  in  whatever  ratio  the 
sum  of  the  prices  of  the  various  items  in  the 
table  is  greater  or  less  than  it  was  at  the  initial 
date.  Thus,  suppose  the  initial  date  was  Jan.  i, 
1900,  and  the  sum  of  the  prices  of  the  items  in 
the  table  at  that  date  was  $250.  Then  if  the 
sum  of  the  prices  on  Jan.  i,  1901,  was  ^240, 
the  index  number  for  Jan.  i,  1901,  would  be  96; 
and  if  the  sum  on  Jan.  i,  1914,  was  $375,  the 
index  number  for  Jan.  i,  1914,  would  be  150. 


The  Multiple  Standard  127 

How  the  index  number  would  be  used  for 
the  correction  of  fluctuations  in  the  general 
price  level  hardly  requires  explanation.  It 
would  be  understood  that  payments  were  to  be 
made,  not  in  the  number  of  dollars  expressly 
named  in  the  agreement,  but  in  such  number  of 
dollars  as,  at  the  time  of  payment,  would  have 
the  purchasing  power  which  the  number  named 
in  the  agreement  had  at  the  time  of  the  agree- 
ment. Thus,  supposing  the  index  numbers  to 
be  as  given  in  the  foregoing  illustration,  a 
person  borrowing  a  sum  of  money  on  Jan.  i, 
1 900,  for  a  term  of  one  year  would,  at  the  expira- 
tion of  the  year,  give  back  to  his  creditor  only 
96  cents  for  every  dollar  he  had  borrowed;  a 
loan  made  on  Jan.  i,  1900,  and  maturing  Jan.  i, 
1914,  would  require  at  maturity  the  payment 
of  $1.50  for  every  dollar  borrowed;  and  a  loan 
made  on  Jan.  i,  1901,  and  maturing  Jan.  i, 
1914,  would  necessitate  the  payment  of  a  num- 
ber of  dollars  bearing  to  the  original  number 
the  ratio  of  1 50  to  96 — in  other  words,  of  $1 .56J 
for  every  dollar  borrowed.  The  same  adjust- 
ment would  be  made  in  regard  to  interest  pay- 
ments as  they  fell  due.  Contracts  of  all  kinds, 
and  not  only  those  that  are  in  the  nature  of 
loans,    might   of  course   be   framed    upon   this 


128  Cost  of  Living 

same  basis.  As  for  such  matters  as  rates  of 
wages  or  salaries,  it  might  be  understood  that, 
in  the  absence  of  any  specific  action  to  the 
contrary,  the  terms  would  be  mechanically  re- 
adjusted at  stated  intervals — say  quarterly, semi- 
annually, or  annually.  If  all  these  things  were 
done,  the  affairs  of  the  country — or  of  the  world, 
as  the  case  may  be — would  be  carried  on  upon 
the  basis  of  a  multiple  or  tabular  standard  of 
value,  though  the  actual  medium  of  exchange 
continued  to  be,  as  it  is  now,  gold  and  its  direct 
representatives. 

Over  and  above  any  question  concerning 
the  theoretical  desirability  of  the  multiple 
or  tabular  standard  there  is  the  question  of  the 
practical  possibility  of  its  introduction.  And, 
to  begin  with,  it  is  evidently  perfectly  possible 
for  any  two  persons  who  have  dealings  with 
each  other  to  introduce  it  on  their  own  account 
so  far  as  their  mutual  transactions  are  concerned. 
There  is  nothing  to  hinder  a  man  who  borrows 
money — provided  the  lender  is  willing — from 
agreeing  to  pay,  upon  the  maturity  of  his  loan, 
not  the  number  of  dollars  which  he  borrowed, 
but  the  number  of  dollars  which  under  the 
tabular  standard  would  at  that  future  date  be 
equivalent  to  the  original  sum.     In  point  of 


ft 


The  Multiple  Standard  129 

fact,  surprising  as  it  may  seem,  contracts  of 
just  this  kind  were  actually  resorted  to — not 
indeed  by  individuals,  but  by  a  State — at  an 
early  period  in  the  history  of  our  own  country. 
As  Prof.  Willard  C.  Fisher  has  pointed  out  in 
the  Quarterly  Journal  of  Economics  for  May, 
1913,  the  depreciation  of  paper  money  in  Mas- 
sachusetts in  the  early  eighteenth  century  led  to  a 
number  of  legislative  attempts  to  regulate  the 
payment  of  debts  in  accordance  with  what  was 
to  all  intents  and  purposes  a  tabular  standard; 
and  in  the  year  1780,  when  prices,  as  measured 
in  the  paper  currency,  had  risen  to  a  fabulous 
height  and  the  future  value  of  that  currency 
was  involved  in  the  greatest  doubt,  the  Massa- 
chusetts Legislature  adopted  the  plan  of  issuing 
notes  for  debts  due  by  the  State,  upon  precisely 
the  principle  just  explained.  A  facsimile  of 
such  a  note,  dated  Jan.  i,  1780,  is  given  by 
Professor  Fisher  in  his  paper;  and  as  a  con- 
crete and  actual  example  of  this  kind  of  con- 
tract may  serve  to  make  the  idea  more  real  to 
the  reader,  it  seems  worth  while  to  reproduce 
its  language  here: 


In  behalf  of  the  State  of  Massachusetts  Bay,  I,  the 
subscriber,  do  hereby  promise  and  oblige  myself  and 


130  Cost  of  Living 

successors  in  the  office  of  Treasurer  of  said  State, 
to  pay  unto  Abner  Berrins,  or  to  his  order,  the  sum 
of  Four  Hundred  Five  Pounds,  on  or  before  the  First 
Day  of  March  i  n  the  Year  of  our  Lord  One  Thousand 
Seven  Hundred  and  Eighty-Four,  with  interest  at 
six  per  cent,  per  annum :  Both  Principal  and  Interest 
to  be  paid  in  the  then  current  Money  of  said  State, 
in  greater  or  less  sum,  according  as  Five  Bushels  of 
Corn,  Sixty-Eight  Pounds  and  four-seventh  Parts 
of  a  Pound  of  Beef,  Ten  Pounds  of  Sheeps'  Wool, 
and  Sixteen  Pounds  of  Sole  Leather  shall  then  cost 
more  or  less  than  One  Hundred  and  Thirty  Pounds 
current  Money,  at  the  then  current  prices  of  the 
said  Articles. 

With  an  index  number  officially  declared  by 
the  Government  (its  computation  being  based 
upon  the  cost  not  of  three  or  four  commodities 
but  of  a  long  and  carefully  chosen  list  of  items  de- 
liberately fixed  upon  and  permanently  adhered 
to)  it  would  be  easy  for  the  parties  to  any  con- 
tract to  make  its  terms  similar  to  those  in  the 
above  note  of  the  State  of  Massachusetts.  It 
vs^ould  call  for  the  payment  of  a  sum  of  money 
equal  to,  greater  than,  or  less  than  the  sum 
named  in  the  contract  according  to  the  ratio 
of  the  index  number  at  the  time  of  payment  to 
the  index  number  at  the  date  of  the  contract. 

It  might  be  thought  that,  if  the  Government 


The  Multiple  Standard  131 

were  simply  to  take  charge  of  the  ascertainment 
and  official  promulgation  of  the  index  number, 
its  use  would  gradually  become  general  through 
its  voluntary  adoption  by  a  greater  and  greater 
number  of  business  men  and  corporations. 
But  there  are  the  best  of  reasons  for  believing 
that  nothing  of  the  kind  would  happen.  In 
special  instances,  the  index  number  might  be 
availed  of;  in  the  ordinary  affairs  of  business  it 
would  be  unable  to  make  its  way,  and  this  not 
only  because  of  the  inertia  which  naturally 
stands  in  the  way  of  such  an  innovation. 
Nor  would  it  be  only  because  of  the  trouble- 
some computations  which  would  stand  be- 
tween the  business  man  and  a  knowledge  of  his 
situation  from  day  to  day,  so  long  as  some  of  his 
assets  and  liabilities  were  reckoned  in  plain 
dollars  and  others  in  dollars  affected  by  the 
correction  of  the  index  number.  There  is  a 
more  deep-seated  difficulty  than  this  in  the 
matter — a  difficulty  sufficiently  indicated,  per- 
haps, in  these  remarks  in  Prof.  Irving  Fisher's 
*'The  Purchasing  Power  of  Money"  (2nd 
edition,  p.  336): 

Business  men  naturally  and  properly  prefer  a 
uniform  system  of  accounts  to  two  systems  warring 
with  each  other.     They  would  complain  of  such  a 


132  Cost  of  Living 

double  system  of  accounts  in  exactly  the  same  way, 
and  on  exactly  the  same  grounds,  as  they  have 
always  complained  of  the  double  system  of  accounts 
involved  in  international  trade  between  gold  and 
silver  countries.  A  business  man's  profits  constitute 
a  narrow  margin  between  receipts  and  expenses.  If 
receipts  and  expenses  could  both  be  reckoned  in  the 
tabular  standard,  his  profits  would  be  more  stable 
than  if  both  were  reckoned  in  money.  But  if  he 
should  pay  some  of  his  expenses,  such  as  interest  and 
wages,  on  a  tabular  basis,  while  his  receipts  remained 
on  the  gold  basis,  his  profits  would  fluctuate  far 
more  than  if  both  sides,  or  all  items  of  the  accounts, 
were  in  gold.  ...  In  either  case,  he  would 
prefer  to  have  the  same  standard  on  both  sides  of 
the  account,  even  if  this  standard  fluctuated,  rather 
than  have  two  standards,  only  one  of  which  fluctu- 
ated; for  his  profits  depend  more  on  the  parallelism 
between  the  two  sides  of  his  account  than  on  the 
stability  of  either. 

If,  then,  the  multiple  or  tabular  standard 
is  ever  to  become  the  usual  basis  of  business 
transactions,  or  even  of  those  business  trans- 
actions in  which  the  element  of  time  enters  in 
an  important  degree,  this  must  come  about 
through  its  establishment,  in  some  way,  as  the 
legal  standard  wherever  the  contrary  is  not 
stated.  That  is,  speaking  broadly,  obligations 
calling  for  the  payment  of  a  given  number  of 


The  Multiple  Standard  133 

dollars  would  have  to  be  understood  as  legally 
requiring   not   the   number   designated   in   the 
bond,   but  such  larger  or  smaller  number   as, 
according  to  the  official  index  number,  would, 
at  the  time  of  payment,  be  equivalent  to  that 
number.     If  such   a  system  were  established, 
the  practice  would  undoubtedly  arise  of  keeping 
accounts — at  least  for  most  of  the  larger  pur- 
poses of  business,  and  possibly  for  all  purposes 
— not   in    dollars,    but   in    tabular   units.     For 
example,  in  the  supposititious  case  considered 
above,  on  Jan.   i,   1900,  $250  would  have  been 
the  equivalent  of  icxd  tabular  units,  and  on  Jan. 
I,  1914,  ^375  would  have  been  that  equivalent; 
and  accordingly  in  books  kept  on  the  tabular 
basis,  each  dollar  would  at  the  former  date  be 
entered  as  0.40  of  a  tabular  unit,  and  at  the 
latter  date  as  0.26I  of  a  tabular  unit.     Thus, 
apart    from    the    comparatively    unimportant 
inconvenience  of  this   arithmetical  conversion, 
there  would  be  no  difficulty  in  a  business  man 
knowing  where  he  stood.     The  objection  above 
considered — the    objection     arising    from    the 
one-sidedness  that  would  attach  to  the  merely 
voluntary  and  incomplete  use  of  the  system — 
would  either  disappear  or  be  reduced  to  com- 
parative insignificance. 


134  Cost  of  Living 

Unfortunately,  however,  the  use  of  the  mul- 
tiple standard  as  the  general  and  legally  estab- 
lished basis  of  payment,  while  free  from  the 
objection  applying  to  its  partial  and  merely 
voluntary  use,  is  open  to  an  objection  of  a  far 
more  fundamental  nature.  It  is  all  very  well 
to  speak  of  a  permanent  method  of  reckoning 
the  index  number;  in  point  of  fact,  where  there 
is  legislation  there  is  no  such  thing  as  per- 
manence. Once  the  Government  has  under- 
taken so  to  adjust  the  basis  of  payment  as  to 
bring  about  equity  between  borrowers  and 
lenders,  between  buyers  and  sellers,  between 
insurance  companies  and  annuitants,  between 
landowners  and  lessees — for  that  matter,  be- 
tween itself  and  its  salaried  employees  and 
pensioners — the  propriety  of  the  particular 
basis  would  always  be  open  to  question  and  to 
attack.  Any  great  class  that  felt,  at  a  given 
time,  that  its  own  interests  were  adversely 
aflPected  by  the  particular  system  in  use  would 
at  once  begin  to  agitate  for  a  change  of  the 
basis,  or  perhaps — and  more  probably — for  an 
abolition  of  the  whole  system  and  a  return  to 
the  old  and  simple  metallic  standard.  Indeed, 
it  would  not  be  necessary,  in  order  to  bring  this 
about,   that   the   system   should    itself   be    the 


The  Multiple  Standard  135 

cause  of  the  grievance  in  question;  if  it  merely 
happened  that  a  great  class  of  the  population 
was,  through  any  cause,  in  monetary  distress, 
the  temptation  would  at  once  suggest  itself 
to  compass  such  a  modification  of  the  law-made 
standard  as  would  seem  to  promise  relief.  In 
a  word,  it  would  be  impossible  to  keep  the  tabu- 
lar standard  ''out  of  politics,"  and  the  uncer- 
tainty thus  injected  into  the  whole  body  of 
business  would  be  an  evil  which,  in  all  human 
probability,  would  far  outweigh  any  good  that 
could  be  accomplished  in  the  way  of  the  cor- 
rection  of  price-fluctuations. 

A  substitute  for  the  tabular  standard  has  re- 
cently been  urged  with  great  ability  by  Prof. 
Irving  Fisher.  Essentially,  this  consists  in 
varying  the  actual  weight  of  the  dollar  in  accord- 
ance with  the  variations  of  the  index  number, 
instead  of  varying  the  number  of  dollars  of  a 
fixed  weight  which  are  to  be  required  for  the 
payment  of  a  given  obligation.  \\  hen  the 
index  number  has  changed  from  100  to  no, 
for  example,  a  man  who  had  borrowed  100  dol- 
lars would  not  have  to  pay  no  dollars;  he 
would  pay  only  100  dollars,  but  the  Govern- 
ment would  make  the  dollar  10  per  cent, 
heavier  than  it  had  been.     This  could  not  be 


136  Cost  of  Living 

actually  accomplished  as  regards  the  coins  that 
pass  from  hand  to  hand;  but  this  difficulty  is 
overcome  in  a  way  that  may  easily  enough  be 
indicated  in  its  main  features.  In  this  coun- 
try gold  circulates  almost  entirely  through  the 
medium  of  certificates.  A  gold  certificate 
represents,  and  is  redeemable  at  the  Treasury 
in,  a  certain  number  of  gold  dollars;  and  what 
this  redemption  really  means  is  that  the  holder 
can  get,  instead  of  his  certificate,  a  certain  fixed 
weight  of  gold  in  coin  or  bullion.  Under  Profes- 
sor Fisher's  scheme  of  the  "compensated  dol- 
lar," the  certificate  would  be  redeemable  in  a 
weight  of  gold  bullion  varying  with  the  index 
number;  instead  of  25.8  grains  of  gold,  nine 
tenths  fine,  for  each  dollar  (as  is  now  the  case), 
it  would  command  10  per  cent,  more  of  gold 
If  the  index  number  went  up  10  per  cent.  And 
in  like  manner,  any  person  depositing  gold  at 
the  Treasury  (or  the  Mint),  instead  of  getting 
one  dollar  In  certificates  for  every  25.8  grains 
of  gold,  nine  tenths  fine,  would  have  to  hand 
over  10  per  cent,  more  if  the  index  number  had 
risen  10  per  cent.  As  for  the  gold  coins  that 
do  actually  circulate,  it  would  be  necessary 
to  have  them  of  less  weight  than  the  standard 
— but  redeemable  in  the  standard  weight   of 


The  Multiple  Standard  137 

bullion  on  demand — so  as  to  prevent  their  being 
melted  down  when  the  standard  fell;  thus  gold 
coins  would  continue  to  circulate  but  they  would 
become  of  the  nature  of  token  money.* 

The  net  result  of  all  this  would  be  that  the 
weight  of  the  dollar — or  rather  its  virtual  weight, 
the  weight  of  bullion  for  which  a  dollar  in  certifi- 
cates, or  a  dollar  in  gold  coin,  could  be  exchanged 
at  the  Treasury  on  demand — would  vary  up 
and  down  with  the  index  number;  so  that  fluc- 
tuations in  the  purchasing  power  of  gold  would 
be  counteracted  not  by  a  change  in  the  number 
of  dollars  required  to  satisfy  a  given  obligation 
but  by  a  change  in  the  quantity  of  gold  that 
each  dollar  would  signify. 

The  advantage  sought  by  this  scheme  of  the 
"compensated  dollar,"  as  compared  with  that 
of  the  tabular  standard,  is  that,  so  far  as  the 
business  world  in  general  is  concerned,  there 
would  be  no  conscious  process  of  correction 
or  adjustment  at  all.  People  would  receive 
and  pay  out  dollars  just  as  called  for  by  their 

*For  the  sake  of  simplicity,  I  have  omitted  an  important 
detail  in  respect  to  the  exchange  of  bullion  for  certificates  and 
vice  versa;  in  order  to  make  the  plan  work  smoothly,  and  so  as 
not  to  offer  opportunity  for  speculators  to  utilize  prospective 
fluctuations  of  the  index  number  to  the  disadvantage  of  the  Gov- 
ernment, it  is  necessary  to  make  the  Government's  buying  price 
of  bullion  (in  certificates)  slightly  lower  than  its  selling,  or  re- 
demption, price. 


138  Cost  of  Living 

contracts  or  other  transactions;  over  the  amount 
of  gold  in  the  dollar  they  would  not  need  to 
trouble  their  heads  unless  they  chose — and 
usually  they  would  not  choose.  It  is  only  very 
special  and  limited  classes  of  persons  to  whom 
the  bullion  value  of  the  dollar  is  a  matter  of 
direct  business  interest.  The  scheme  there- 
fore is  a  tempting  one  on  its  face;  but  it  re- 
quires only  a  Kttle  thought  to  see  that  it  fails 
to  overcome  the  most  vital  objection  to  which 
the  tabular  standard  is  exposed.  Whether 
people  in  their  daily  transactions  did  or  did 
not  think  of  the  weight  of  the  dollar,  they  would 
be  perfectly  aware  that  that  weight  was  being 
changed  from  time  to  time  for  the  purpose  of 
regulating  the  price-level;  and  this  knowledge 
would  be  quite  sufficient-,  at  any  time  of  wide- 
spread discontent,  to  set  on  foot  just  such 
agitations  for  a  change  of  the  basis  as  would  arise 
under  the  legalized  tabular  standard.  And, 
unlike  the  tabular  standard,  the  ''compensated 
dollar"  could  not  be  introduced  at  all  unless 
it  were  introduced  by  a  governmental  act,  dis- 
placing the  simple  gold  standard  altogether. 
The  tabular  standard,  indeed,  is  between  the 
devil  and  the  deep  sea — between  the  difficulties 
of  introducing  it  upon  the  voluntary  plan  and 


The  Multiple  Standard  139 

the  dangers  that  would  attend  its  adoption  by 
legislative  act.  But  at  least  there  is  a  choice 
between  the  two;  and,  indeed,  there  might  be  a 
combination  of  the  two.  The  *' compensated 
dollar,"  on  the  other  hand,  would  mean  an  ab- 
solute abandonment  of  the  simple  gold  standard, 
and  a  plunge  into  the  deep  waters  of  govern- 
mental interference  with  the  basis  of  pay- 
ments.* 

In  sum,  it  must  be  said,  therefore,  that  there 
is  little  prospect  of  a  multiple  standard  com- 
ing into  use  through  gradual  voluntary  adop- 
tion, and  that  the  objections  to  its  introduction 
in  any  form  by  governmental  act  are  so  strong 
as  to  make  that  equally  improbable.  Nor,  after 
everything  is  admitted  that  must  be  admitted 
in  regard  to  the  imperfection  of  the  gold  stand- 
ard, should  the  fact  that  we  are  likely  to  con- 
tinue for  an  indefinitely  long  future  to  abide  by 
it  be  regarded  as  matter  for  melancholy  com- 
plaining. There  is  something  irritating,  to 
be  sure,  in  the  thought  that  the  gigantic  busi- 

*The  question  of  international  trade  relations  has  not  been 
touched  upon;  on  this  and  other  points  an  admirably  lucid  criti- 
cism of  the  plan  is  to  be  found  in  Prof.  Taussig's  article,  "The 
Plan  for  a  Compensated  Dollar,"  in  the  Quarterly  Journal  of 
Economics,  May,  1913.  Prof.  Fisher's  article,  "A  Compensated 
Dollar,"  in  the  same  Journal,  February,  1913,  gives  a  detailed 
statement  of  the  method  he  proposes,  and  presents  concisely 
the  argument  in  its  favor. 


140  Cost  of  Living 

ness  relations  of  the  world  should  rest  upon  such 
a  basis  as  the  value  of  one  particular  metal;  but 
instead  of  repining  over  this  curious  circum- 
stance it  would  be  far  more  justifiable  to  rejoice 
at  the  lucky  chance  that  there  exists  one  metal 
that  is  accepted  the  world  over  as  a  medium  of 
exchange  and  is  capable  of  playing  as  well  as 
gold  does  the  part  of  a  fairly  stable  standard  of 
value.  To  that  fortunate  accident  is  due  the 
freedom  of  the  business  world  from  disturbances 
and  uncertainties — not  to  speak  of  complexities 
and  difficulties — of  which  the  evil  effect  would 
dwarf  into  insignificance  those  that  are  suffered 
through  the  fluctuations  of  the  value  of  gold, 
which,  after  all,  do  not  take  place  with  sudden- 
ness and  do  tend  for  the  most  part  to  be  roughly 
corrected  in  one  way  and  another  by  compen- 
satory adjustments.  A  better  standard  would 
unquestionably  be  desirable;  and  it  is  con- 
ceivable that  at  some  time  in  the  future — whether 
through  some  scientific  discovery  that  made 
gold  cheaply  attainable  in  practically  unlimited 
quantities  or  through  some  other  cause — the 
value  of  gold  may  vary  so  violently  as  to  make 
resort  to  a  better  standard  imperative.  But 
so  long  as  conditions  in  this  regard  are  no  worse 
than  they  have  been — and  there  is  no  sign  that 


The  Multiple  Standard  141 

they  are  Hkely  to  be  so — we  must  cHng  to  the 
security  and  simpHcity  of  the  present  system 
rather  than  grasp  at  a  theoretical  perfection 
which  can  only  be  attempted  at  the  cost  of  sacri- 
ficing those  invaluable  attributes. 


CHAPTER  XIII 

THE  WAR,  AND  THE  FUTURE 

In  discussing  the  various  phases  of  the  cost-of- 
living  question,  the  great  war  has,  in  this  Httle 
book,  been  entirely  ignored.  This  has  not 
been  accidental.  So  far  as  statistical  facts  are 
concerned  it  has  been  unnecessary  to  make  any 
mention  of  the  war,  since  no  attempt  has  been 
made  to  give  statistical  information  of  any 
kind;  and  where  broad  reference  of  arithmetical 
nature  has  been  made  to  the  actual  course  of 
prices  it  has  seemed  best  to  make  these  apply 
to  the  general  developments  of  recent  years 
rather  than  to  the  extraordinary  and  peculiar 
facts  connected  with  the  war.  As  for  the  other 
class  of  considerations  related  to  the  war — 
those  that  are  not  statistical  or  numerical  but 
refer  to  general  questions  of  cause  and  effect — 
the  extreme  complexity  and  difficulty  with 
which  any  discussion  of  them  is  necessarily 
attended  has  seemed  a  sufficient  reason  for 
their  exclusion.     To  elucidate  in  some  degree 

142 


The  War,  and  the  Future  143 

the  broad  principles  governing  the  rise  and  fall 
of  prices  and  their  connection  with  the  cost  of 
living,  as  operative  in  normal  times,  has  been 
the  limit  of  what  has  here  been  attempted. 
Nevertheless,  it  may  seem  strange  to  pass  the 
whole  matter  of  the  war  in  silence;  and  accord- 
ingly this  little  chapter  is  devoted  to  some  re- 
marks on  the  subject  which,  while  making  no 
attempt  to  estimate  the  actual  effect  of  the 
mighty  forces  at  work  in  the  great  cataclysm, 
may  be  not  altogether  amiss. 

That  the  level  of  prices  has  risen  during  the 
war,  and  particularly  in  the  countries  most 
directly  affected  by  it,  is  in  no  way  surprising. 
The  withdrawal  of  vast  numbers  of  producers 
from  the  work  of  production  to  that  of  mili- 
tary service  has  seriously  diminished  the  supply 
of  many  commodities,  in  the  case  of  most  of 
which  the  demand  has  not  correspondingly 
diminished,  and  indeed  in  many  cases  has  in- 
creased. The  inevitable  consequence  of  this 
is  an  increase  in  the  price  of  those  commodities, 
unless  at  the  same  time  there  should  have  hap- 
pened a  diminution  in  the  supply  of  money. 
It  is  not  inconceivable  that  in  time  of  war  such 
a  diminution  should  take  place.  In  older  days, 
when  a  far  less  serious  upset  of  normal  con- 


144  Cost  of  Living 

ditions  would  have  led  to  hoarding  on  a  great 
scale,  the  available  supply  of  gold  (or  gold  and 
silver)  would  in  the  event  of  a  great  war  shrink 
very  greatly,  and  prices,  as  measured  in  gold, 
would  accordingly  by  so  much  tend  to  fall. 
The  issue  of  irredeemable  paper  money  might, 
of  course,  to  an  indefinite  extent  raise  prices 
in  that  kind  of  currency;  and  this  is  just  what 
happened  in  our  own  Civil  War.  But  in  the 
present  gigantic  conflict  there  has  not  been 
in  any  of  the  principal  nations  any  manifesta- 
tion of  the  hoarding  tendency,  but  quite  the 
contrary;  in  all  of  them,  at  least  up  to  the  pres- 
ent time,  there  has  been  such  confidence  in  the 
future  that  both  the  governments  and  the  banks 
have  maintained  their  credit  unimpaired,  and 
indeed  even  stimulated.  There  has  been  some 
approach  to  a  condition  of  irredeemable  paper 
currency;  but  for  the  present  it  is  sufficiently 
correct  to  say  that  the  chief  countries  of  Europe 
remain  substantially  on  a  gold  basis,  and  yet 
that  their  volume  of  money — ordinary  circu- 
lation and  the  credit  substitutes  for  it — is  at  its 
normal  magnitude  or  more.  With  supply  of 
commodities  impaired,  with  demand  in  many 
cases  unimpaired  or  increased,  and  with  mone- 
tary circulation  as  large  or  larger  than  ever, 


The  War,  and  the  Future  145 

It  is  natural  that  prices  are  high.  It  is  rather 
interesting  to  note  that  the  London  Economist's 
index  number  for  commodities  in  general  rose 
30  per  cent,  in  the  first  nine  months  of  the  war, 
but  that  there  was  a  very  wide  divergence  in 
the  showing  for  the  various  great  groups  of 
commodities.  Thus  the  group  of  cereals  and 
meats  showed  a  rise  of  nearly  50  per  cent;  the 
rise  for  other  food  products  was  not  quite  25 
per  cent.;  minerals  advanced  35  per  cent.; 
and  a  miscellaneous  group,  which  includes  rub- 
ber, timber,  ores,  etc.,  showed  a  rise  of  55  per 
cent.  On  the  other  hand,  textiles  did  not  rise 
at  all,  but  actually  showed  a  small  decline;  this 
decline  was  4  per  cent,  at  the  end  of  the  nine 
months,  but  at  the  end  of  the  first  five  months 
of  the  war  the  decline  was  nearly  20  per  cent. 
Is  not  all  this  just  about  what  one  might  have 
expected  in  view  of  the  varying  urgency  of 
demand  in  these  various  cases  .^ 

It  is  when  we  come  to  considering  the  future 
effects  of  the  war  upon  the  course  of  prices, 
the  effects  that  will  be  felt  after  the  war  is  over, 
that  we  find  ourselves  plunged  into  a  sea  of 
difficulties.  Any  prediction  whatever  is  haz- 
ardous; yet  it  seems  safe  to  say  that  the  effect 
of  the  war  will  be  to  confirm  for  some  time  the 


146  Cost  of  Living 

tendency  to  rising  prices  which  had  been  so 
marked  for  a  number  of  years  preceding  its 
outbreak.  The  two  chief  reasons  for  thinking 
that  this  will  be  the  case  are  that  the  producing 
power  of  the  world  will  have  been  diminished 
through  extensive  destruction  of  capital  and 
also  through  the  destruction  of  the  lives  of 
great  numbers  of  efficient  workers,  and  that 
the  inflation  of  the  currency  which  has  been 
brought  about  in  the  warring  countries  by  the 
various  expedients  adopted  by  the  govern- 
ments for  the  carrying  on  of  the  war  will  con- 
tinue for  some  time  after  the  war  is  over. 

On  the  subject  of  the  destruction  of  capital 
by  wars  and  its  restoration  after  the  reestab- 
lishment  of  peace,  there  has  been  a  great  deal 
of  interesting  discussion.  By  destruction  of 
capital  we  mean  the  destruction  of  the  means  of 
production.  The  hardships  inflicted  by  the 
destruction  of  consumable  goods,  except  insofar 
as  these  might  have  served  for  future  pro- 
duction, must  not  be  reckoned  in  the  same 
class;  whatever  suff'ering  this  may  cause  is 
endured  at  the  time,  and  does  not  affect  the 
world's  capacity  for  supplying  its  needs  in 
the  future.  Accordingly,  a  large  part  of  the 
tremendous  waste  caused  by  the  war  must  be 


1 


The  War,  and  the  Future  147 

left  out  of  account  in  estimating  its  more  last- 
ing economic  effects.  There  remains,  neverthe- 
less, a  prodigious  impairment  of  the  means  of 
production — houses  and  machinery  destroyed, 
fields  laid  waste  and  the  resources  of  agri- 
culturists swept  away,  bridges  blown  up,  roads 
made  impassable,  railroads  crippled.  All  these 
losses  have  to  be  made  good  before  the  world 
is  again  in  a  condition  to  carry  on  its  productive 
activities  on  their  old  footing.  So  great  is  the 
devastation  in  an  extensive  war  that  it  has 
always  been  a  subject  of  wonder  that  the  res- 
toration of  normal  conditions  takes  place  so 
rapidly  as  it  does.  The  matter,  however,  is 
not  so  mysterious  as  it  appears  at  first  blush; 
the  explanation  lies  chiefly  in  the  fact  that  this 
process  of  restoration  of  capital  is  not  the  result 
of  some  strange  and  mighty  efl^ort  called  forth, 
as  a  new  thing,  by  the  dire  exigency,  but  is  a 
process  that  is  silently  going  on  all  the  time. 
Capital  in  most  of  its  forms  is  being  constantly 
used  up  and  replaced,  in  the  ordinary  course  of 
the  processes  of  production.  As  John  Stuart 
Mill  puts  it:  "What  the  enemy  have  destroyed 
would  have  been  destroyed  in  a  little  time  by 
the  inhabitants  themselves;  the  wealth  which 
they  so   rapidly  reproduce  would  have  needed 


148  Cost  of  Living 

to  be  reproduced  and  would  have  been  repro- 
duced in  any  case,  and  probably  in  as  short 
a  time.  Nothing  is  changed,  except  that  dur- 
ing the  reproduction  they  have  not  now  the 
advantage  of  consuming  what  had  been  pro- 
duced previously."  In  other  words,  there  is  a 
great  deal  of  privation,  arising  from  the  failure 
of  the  productive  apparatus  to  produce  during 
the  period  in  which  it  is  being  restored;  but 
the  restoration  itself  is,  broadly  speaking,  not 
very  different  from  what  would  have  taken 
place  in  any  event.  And  applying  this  idea 
to  the  question  of  supply  and  prices,  the  con- 
clusion would  be  that  within  a  few  years  the 
effects  of  the  impairment  of  capital  in  dimin- 
ishing supply  and  raising  prices  may  be  ex- 
pected to  have  died  out. 

More  lasting  results  in  the  direction  of 
raising  prices  may  be  expected  to  arise  from  the 
inflation  of  the  currency  which,  started  by  the 
exigencies  of  the  war,  is  apt  to  continue  long 
after  it  is  over.  In  the  case  of  a  war  of  any- 
thing like  ordinary  magnitude,  an  immediate 
return,  at  its  close,  to  absolute  convertibility 
of  paper  into  gold,  in  such  countries  as  Ger- 
many or  France — not  to  speak  of  England — 
might  be  looked   upon  as  a  certainty.     With 


The  War,  and  the  Future  149 

the  colossal  conflict  now  going  on,  this  cer- 
tainty cannot  be  asserted.  If,  in  any  of  these 
countries,  there  should  come,  upon  the  ter- 
mination of  the  war,  a  considerable  period 
during  which  business  was  done  upon  the  basis 
of  a  depreciated  paper  currency,  the  gold 
driven  out  of  circulation  in  those  countries 
would  swell  the  volume  of  gold  money  in  the 
countries  remaining  on  a  gold  basis — such  as 
our  own,  for  example — and  would  thus  oper- 
ate to  raise  gold  money  prices  in  the  same  way 
as  would  a  like  accession  to  the  gold  supply 
coming  from  the  mines.  But  even  if  there  were 
to  be  no  such  displacement  of  gold,  and  no  such 
use  of  irredeemable  paper  money,  there  will 
have  been  introduced  such  a  stretching  of  the 
capabilities  of  the  existing  system  as  will 
greatly  swell  the  volume  of  the  paper  circula- 
tion resting  upon  a  given  volume  of  gold;  and, 
once  introduced,  it  will  probably  stay  a  long 
time,  if  not  permanently. 

For  these  reasons,  the  expectation  widely 
entertained  that  any  prospect  of  a  check 
to  the  high-price  tendency  which  may  have 
existed  a  year  ago  has  been  subjected  to  serious 
postponement  by  the  war  is  probably  sound. 
It  is  not  altogether  impossible,  however,  that 


150  Cost  of  Living 

elements  of  a  wholly  different  kind  may  enter 
which  will  tend  to  produce  the  opposite  effect. 
What  condition  of  mind,  as  well  as  of  material 
resources,  Europe  will  find  herself  in  if  the  war 
shall  continue  its  work  of  devastation  and  ex- 
haustion for  another  year,  or  another  two  years, 
no  one  can  predict.  Is  it  not  possible  that, 
when  the  fevered  absorption  of  the  peoples  in 
the  gigantic  conflict  is  over,  a  state  of  mind 
may  supervene  in  which  men's  confidence  in 
the  stability  of  many  things  now  considered 
unshakeable  will  have  been  so  weakened  as  to 
impair  the  strength  of  important  elements  in 
the  vast  credit  system  upon  which  business 
rests?  If  this  should  happen,  and  in  a  measure 
corresponding  to  the  degree  in  which  it  hap- 
pens, the  efl&cacy  of  the  world's  mone- 
tary circulation  will  thereby  be  diminished; 
a  given  volume  of  money  will  not  suffice  to 
do  the  same  volume  of  business  upon  a  given 
scale  of  prices  as  it  otherwise  would;  and  ac- 
cordingly the  price-level  will,  insofar  as  the 
operation  of  this  element  in  the  situation  is 
concerned,  tend  to  fall. 

Another  point  is  worth  mentioning:  it  is 
the  hope  of  all  lovers  of  humanity  that  w^hen 
peace  is  reestablished  it  will  be  upon   a  basis 


The  War,  and  the  Future  151 

that  will  reUeve  the  world  of  the  necessity  of 
maintaining  enormous  miUtary  and  naval  ex- 
penditures in  time  of  peace.  It  is  far  from  cer- 
tain that  this  longed-for  end  will  be  attained; 
but  if  it  should  be,  the  result  will  be  a  consider- 
able increase  in  the  productive  capacity  of  the 
world,  which,  like  any  other  such  increase,  will 
tend  to  lower  the  price-level.  And  it  is  quite 
worth  while  to  point  out  that  we  must  not  in 
this  connection  regard  a  great  class  of  pubHc 
expenditures  which  are  usually — and  for  the 
purposes  of  some  arguments  justly — classed 
with  the  expenditures  for  the  maintenance  of 
armies  and  navies  and  national  defences.  How- 
ever burdensome,  from  the  standpoint  of  the 
taxpayers,  may  be  the  annual  drafts  on  the 
pubhc  treasury  for  the  payment  of  interest  on 
the  pubHc  debt,  these  do  not  constitute  a  drain 
on  the  producing  power  of  a  nation.  These 
interest  payments  merely  transfer  certain  sums 
of  money  from  the  pockets  of  the  taxpayers 
as  such  into  the  pockets  of  the  bondholders  as 
such;  and  there  is  no  more  reason  to  suppose — on 
the  whole,  indeed,  there  is  doubtless  less  reason 
to  suppose — that  the  bondholders  will  use  the 
money  unproductively  than  that  the  tax- 
payers   in    general    will    do    so.     What    does 


152  Cost  of  Living 

bring  about  waste  of  productive  resources  is 
the  actual  diversion  of  labor  and  capital  to 
the  service  of  war  or  of  war  preparedness. 
Whatever  increase  there  may  be  in  the  produc- 
tive capacity  of  a  nation  through  the  cutting 
down  of  this  diversion  of  its  resources  will  be 
a  net  gain  for  that  capacity.  The  terrific  in- 
crease in  the  public  debts  of  the  warring 
nations  which  is  now  going  on  will  be  a  heavy 
load  for  their  individual  citizens  to  carry,  but 
(insofar  as  the  debts  are  held  at  home)  they 
will  not  constitute  an  impairment  of  productive 
capacity. 

Looking  to  the  long  future,  and  quite  apart 
from  any  special  considerations  relating  to 
the  war,  there  is  one  thing  that  must  always 
be  borne  in  mind  in  any  speculation  as  to  the 
probable  course  of  the  price-level.  The  degree 
in  which  that  level  is  aflFected  by  an  addition 
to  the  volume  of  the  world's  money  is  a  ques- 
tion not  of  difference  but  of  ratio — not  how 
many  dollars  have  been  added  to  the  preex- 
isting supply,  but  by  what  percentage  that 
supply  has  been  increased.  Of  the  three 
factors  that  determine  the  price-level — quan- 
tity of  gold,  condition  of  the  mechanism  of 
credit   and   business,   and   volume  of  business 


The  War,   and  the  Future  153 

to  be  transacted — all  are  going  to  vary  in 
ways  of  which  it  is  quite  impossible  to  forecast 
the  nature  or  extent.  Advances  in  the  first 
two  tend  to  raise  prices;  advances  in  the  last 
tend  to  lower  them;  and  all  three  have  in 
recent  times  been  advancing  enormously,  and 
are  likely  to  continue  to  do  so  for  a  long  time 
to  come.  On  which  side  the  balance  will 
lie  no  one  can  say  with  certainty.  But  at 
least  we  should  bear  in  mind  one  simple 
fact  as  regards  the  first  of  the  factors — 
that  a  given  annual  addition  to  the  world's 
supply  of  gold  is  less  and  less  effective  toward 
the  raising  of  prices  as  the  total  accumulated 
supply  becomes  greater  and  greater,  since  of 
course  that  fixed  addition  becomes  a  smaller 
and  smaller  percentage  of  the  existing  accu- 
mulation. It  is  largely  on  account  of  this  fact 
that  most  economists  decline  to  share  the 
alarm  felt  by  some  over  the  possibility  of  a 
long-continued  rise  of  prices  so  serious  as  to 
constitute  a  dangerous  evil. 


CHAPTER  XIV 

SOME  GENERAL  REFLECTIONS 

As  THE  reader  approaches  the  close  of  this  little 
book  he  will  doubtless  have  observed  for 
himself  what  has  been  its  main  object.  No 
attempt  has  been  made  in  it  to  suggest  any 
solution  of  the  problem  of  the  cost  of  living. 
It  has  been  confined  almost  exclusively  to  the 
purpose  of  setting  forth  the  principal  elements 
that  enter  into  the  question,  the  end  in  view 
being  the  promotion  of  clear  thinking  rather 
than  of  any  course  of  action.  To  the  writer's 
mind  this  in  itself  is  an  end  well  worth  seek- 
ing, without  regard  to  any  ulterior  justifica- 
tion; but  as  a  matter  of  fact  the  avoidance  of 
error,  and  above  all  of  fundamental  error, 
has  in  this  domain  a  practical  importance  which 
historical  experience  has  shown  to  be  quite  as 
great  as  that  of  any  constructive  propaganda. 
It  is  to  the  prevalence  of  fundamental  errors, 
or  the  want  of  clear  recognition  of  fundamental 
truths,  relating  to  money  and  prices,  that  many 

154 


Some  General  Reflections  155 

of  the  most  serious  dangers  to  which  the  eco- 
nomic welfare  of  nations  has  been  subjected 
must  be  ascribed.  Even  when  the  struggle 
to  combat  these  dangers  has  been  successful, 
the  cost  of  it  in  the  shape  of  disturbing,  and 
sometimes  paralyzing,  uncertainties  has  often 
been  enormous;  and  there  have  been  times  when 
unsound  theories  have  gained  the  upper  hand 
and  been  put  into  practice,  with  results  even 
more  disastrous.  Even  from  the  practical 
standpoint,  therefore,  no  apology  is  needed 
for  an  attempt  to  strengthen  the  hold  of  the 
elementary  principles  of  this  subject  upon 
the  minds  of  the  general  public. 

There  is  one  error  of  thought,  however, 
which,  although  referred  to  and  discussed  at 
some  length  in  an  early  chapter  of  this  book, 
has  been  almost  lost  sight  of  in  the  main  body 
of  it,  and  to  which  it  therefore  seems  desirable 
to  direct  attention  again  in  these  concluding 
pages.  Nearly  all  of  the  discussion  has  of 
necessity  related  to  price — money  price — and 
not  to  cost  in  its  more  proper  sense.  There  is 
some  danger,  therefore,  that  the  reader,  while 
put  on  his  guard  against  various  errors  re- 
lating to  money  and  prices,  may  be  more  prone 
than  ever  to  forget  that  there  is  such  a  thing 


156  Cost  of  Living 

as  cost  in  a  sense  that  has  nothing  to  do  with 
money.  Primarily,  the  cost  of  the  various 
objects  of  human  desire — the  cost  of  Hving,  if 
you  please — is  a  question  of  the  labor,  the 
effort,  the  sacrifice,  necessary  to  the  obtaining 
of  them;  the  function  of  '  money,  or  price, 
bears  not  upon  this  fundamental  cost  but  upon 
those  processes  of  exchange  and  distribution 
which  determine  the  shares  of  the  product 
that  fall  to  the  various  individuals  or  classes 
which  constitute  the  community.  Accordingly, 
apart  from  all  those  questions  of  the  cost  of 
living  which  turn  on  the  purchasing  power  of 
the  monetary  unit,  there  is  the  question  of 
changes  in  the  cost  of  living  brought  about  by 
the  greater  or  less  ease  with  which  the  various 
things  consumed  or  desired  by  men  can  be 
extracted  from  the  earth,  worked  up  into  the 
desired  forms,  and  brought  to  their  final  des- 
tination by  the  processes  of  transportation 
and  of  business  organization.  If  the  high 
cost  of  living  of  recent  years  had  been  brought 
about  by  an  increase  in  the  difficulty  of  pro- 
duction, the  world  would  be  confronted  by 
questions  very  different  from  those  with  whicli 
w^e  have  here  been  chiefly  concerned. 

To  some  extent,  so  far  as  regards  food  prod- 


Some  General  Reflections  157 

ucts  and  certain  raw  materials,  this  has  doubt- 
less actually  been  the  case;  and  this  factor  has 
not  been  overlooked  in  the  preceding  pages. 
Whether  it  constitutes  an  element  of  grave  con- 
sequence in  the  present  and  prospective  situa- 
tion of  the  world  is  a  question  on  which  opin- 
ions may  differ.  In  the  matter  of  food  supply, 
the  increase  of  population  and  the  more  and 
more  complete  taking  up  of  the  available  areas 
of  the  earth's  surface  tend  to  increase  real 
cost,  while  the.  advance  of  scientific  agriculture 
and  the  spread  of  intelligence  among  the 
agricultural  populations  of  the  world  tend  to 
diminish  it.  Which  of  these  forces  will  pre- 
ponderate in  the  near  or  remote  future,  and  to 
what  extent,  is  purely  a  matter  of  conjecture. 
The  rate  of  increase  of  population,  however, 
is  steadily  falling  in  nearly  every  country  of 
the  civilized  world;  the  advance  of  science  is 
proceeding  without  abatement;  and  it  is  per- 
haps safe  to  say  that  the  spread  of  intelligence 
among  large  agricultural  populations  still  pur- 
suing primitive  methods  may  be  expected  for 
some  time  to  go  on  at  such  a  rate  as  to  supply 
a  fair  substitute  for  the  opening  up  of  new 
areas.  There  is,  moreover,  another  considera- 
tion which  bears  very  strongly  on  the  impor- 


158  Cost  of  Living 

tance  of  such  increase  in  real  cost  as  may,  in 
spite  of  these  counteracting  factors,  take  place 
in  the  matter  of  food.  Broadly  speaking,  there 
has  for  some  generations  been  going  on — and 
there  is  every  reason  to  expect  that  it  will  con- 
tinue to  go  on — a  general  rise  in  the  standard 
of  living,  a  rise  consisting  in  large  part  of  the 
inclusion,  among  the  elements  of  an  ordinary 
living,  of  a  great  number  of  requirements  other 
than  food  which  were  formerly  either  unknown 
or  classed  as  luxuries.  The  more  of  these 
elements  that  enter  into  the  make-up  of  a 
"living,"  the  less  is  the  cost  of  living  deter- 
mined by  the  cost  of  food;  and  in  nearly  all  of 
this  class  of  things  there  is  a  constant  tendency 
to  diminution  of  real  cost,  through  the  advance 
of  science,  invention,  and  organization.  Take 
it  all  in  all,  therefore,  there  seems  little  reason 
for  serious  anxiety  on  the  score  of  prospective 
increase  in  the  real  cost  of  what  may  be  called 
an  ordinary  living. 

An  aspect  of  the  cost  of  living  upon  which  we 
have  barely  touched,  if  at  all,  is  that  which 
relates  not  to  production  or  acquisition  but  to 
consumption.  One  way,  of  course,  in  which 
any  person  can  reduce  his  cost  of  living  is  to 
restrict   his  desires.     Doubtless   a  great   many 


Some  General  Reflections  159 

of  us  would  be  happier  if  we  spent  less;  doubt- 
less a  large  part  of  the  expenditure  of  nearly 
everybody  is  determined  by  motives  which  a 
philosophic  mind  would  find  no  difficulty  in 
controlling  or  ignoring.  A  great  part  of  our 
expenditure  is  due  to  a  desire  for  keeping  up 
appearances,  for  doing  as  others  do,  rather  than 
for  the  gratification  of  any  genuine  personal 
taste.  Among  a  very  large  proportion  of  the 
people  who  are  above  the  stage  of  downright 
poverty,  a  hearty  and  whole-souled  adoption 
of  the  doctrine  of  "the  simple  life"  would 
afford  a  complete  solution  of  the  problem  of 
the  cost  of  living.  There  is  no  sign,  however, 
that,  measured  by  numbers,  the  spread  of  that 
doctrine  is  likely  to  be  such  as  to  make  any 
notable  impression  on  general  ways  of  living. 
He  who  preaches  it  with  eloquence  may  be 
listened  to  with  interest;  but  so  far  as  practice 
is  concerned  his  voice  is  that  of  one  crying 
in  the  wilderness.  Nevertheless,  it  is  exceed- 
ingly desirable  that  the  ways  in  which  this  kind 
of  bettering  of  one's  condition  may  be  effected 
should  be  brought  home  to  people's  minds; 
but  the  subject  is  one  that  belongs  rather  to 
the  province  of  the  moralist  and  the  social 
philosopher  than  to  that  of  the  economist. 


i6o  Cost  of  Living 

So  far  as  legislative  remedies  for  the  high  cost 
of  living  are  concerned,  any  large  proposal  for 
this  purpose  is  almost  sure  to  deal  with  the 
monetary  aspect  of  it.  That  in  the  opinion 
of  the  present  writer  no  proposal  of  this  nature 
thus  far  suggested  is  calculated  to  be  of  bene- 
ficial effect,  was  perhaps  sufficiently  indicated 
in  the  twelfth  chapter.  But  it  may  be  well 
here  to  set  down  in  more  concise  and  more  gen- 
eral form  the  essential  nature  of  the  argument 
against  such  interference.  To  the  specific  argu- 
ment against  the  legislative  establishment  of 
the  multiple  standard,  or  the  compensated 
dollar,  upon  which  most  stress  was  laid  above, 
it  might  be  objected  that  even  as  things 
are,  an  agitation  is  always  possible  against 
the  established  standard.  But  there  is  a  vital 
difference  between  the  two  states  of  things. 
As  things  are,  the  Government  makes  no  pre- 
tense of  securing  equity  as  between  the  two 
parties  to  any  contract  or  business  arrangement. 
A  dollar  is  so  many  grains  of  gold;  everybody 
knows  this,  and  knows  that  he  is  taking  all 
the  chances  of  its  ups  and  downs  in  value. 
So  long  as  this  understanding  is  universal, 
the  great  and  simple  principle  of  the  inviolabil- 
ity of  contracts  is  all  that  has  to  be  appealed  to 


Some  General  Reflections  i6i 

by  the  defenders  of  the  estabHshed  standard 
whenever  it  is  attacked.  In  point  of  fact,  in 
the  older  commercial  countries  of  the  world 
it  never  is  attacked;  and  we  have  reached  a 
stage  in  our  own  country  when  such  attack 
has  become  in  the  highest  degree  improbable. 
But  if  it  should  come,  it  is  as  nearly  certain 
as  any  human  forecast  can  be  that  the  attack 
will  be  promptly  and  decisively  defeated.  If, 
on  the  other  hand,  the  Government  should 
undertake,  upon  any  plan  w^hatsoever,  to  regu- 
late the  standard  with  a  view  to  securing  an 
abstract  equity,  no  great  and  impregnable 
principle  could  be  appealed  to  for  the  undis- 
turbed maintenance  of  the  particular  method 
that  had  been  adopted.  In  this  justification 
of  an  institution  that  is  admittedly  imperfect, 
but  that  has  the  transcendent  merit  of  resting 
on  a  simple  principle  which  all  men  can  grasp 
and  to  which  all  men  can  be  loyal,  there  is 
nothing  singular.  This  same  kind  of  sacrifice 
of  an  ideal  perfection  for  the  sake  of  securing  a 
solid  and  unshakeable  basis  for  the  conduct  of 
life  is  made  in  every  vital  concern  of  mankind. 
The  institution  of  property,  the  institution  of 
marriage,  can  easily  be  shown  up  as  full  of  in- 
justices and  even  absurdities;  we  hold  them  fast 


i62  Cost  of  Living 

not  because  they  are  perfect,  but  because  to  let 
them  go  would  be  to  undermine  foundations, 
for  the  sake  of  correcting  what  are,  after  all, 
however  serious,  merely  faults  in  the  super- 
structure. 


THE    END 


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